ANDREW BAHLMANN: Mergers and acquisitions help mitigate supply chain tribulations

The Covid-19 pandemic unleashed unprecedented disruption of global supply chains, as companies faced unparallelled challenges such as delayed deliveries, reduced access to raw materials and inventory shortages. This exposed vulnerabilities and shattered long-held assumptions, leading companies to increasingly turn to mergers and acquisition (M&A) as their strategic response.

Despite a subsequent softening of the logistical challenges, that strategic trend has remained intact. Multinationals have embraced the age-old idiom that “stock is king” by identifying vertical integration as an invaluable means of acquiring market resilience. The answer for many has been to strategically integrate their global supplier footprints through M&A transactions to diversify sources or secure supply chain security. Supply chain resilience and security are today’s key considerations for business continuity.

That resilience is achieved as companies strengthen their global supplier footprints and ensure greater supply chain security through M&A transactions. By expanding operations along the value chain companies gain greater control, streamline processes, reduce risk and achieve operational efficiencies. Vertical integration also enables businesses to respond more effectively to market dynamics and navigate supply chain disruptions.

For many companies, the supply chain crisis exposed the frailty of sometimes complex, interconnected global supply networks. Lockdowns, travel restrictions and container shortages disrupted manufacturing, transportation, and logistics operations.

Vertical integration may have been a response to a crisis, but it has since gained increasing traction. It involves expanding a company’s operations along the value chain either backwards to suppliers or forwards to customers. By integrating backwards, companies can secure critical inputs, reduce dependency on external suppliers, mitigate the risks associated with supply chain disruptions and even acquire logistics firms.

This resilience allows companies to better navigate market uncertainties, fluctuations in demand and unexpected disruptions, ensuring a steady flow of materials and reducing vulnerability to external shocks. By acquiring suppliers or distribution channels companies can achieve better co-ordination, seamless information flow and tighter control over costs and quality standards.

Forward vertical integration also provides companies with greater control and flexibility in responding to market dynamics. Companies can secure distribution channels or gain direct access to end customers. This control enables businesses to adapt swiftly to changing customer preferences, capture a larger share of the value chain and respond to market trends with agility. They can shape market demand, expand their market presence, and reduce reliance on external partners.

Parallel to this, in recent years there has been a growing trend towards globalisation, highlighting the need for localised adaptations and strategies within a global framework. Globalisation can be characterised by the transfer of production facilities, resources, and expertise from developed countries to emerging economies, seeking various advantages such as cost-effectiveness, international market access, and technological advancements. African countries have been somewhat on the sidelines in this globalised landscape, which has primarily benefited Asia and the Gulf region, but there are clear opportunities to leverage our abundant resources, low-cost labour, and potential consumer markets.

While the globalisation of manufacturing can bring opportunities to Africa, it faces considerable challenges. African nations often face issues such as overreliance on foreign technologies, limited participation in global value chains beyond low-value-added activities, and vulnerability to global economic fluctuations. Additionally, specific challenges relate to infrastructure, logistics and skills gaps.

M&A is a primary tool in enabling vertical integration by providing opportunities to acquire or merge with companies possessing complementary technologies, expertise, or market access. Through these transactions, businesses can access valuable technological synergies that drive innovation, enhance product offerings, and streamline operations. The integration of technology can strengthen business resilience by improving process automation, enhancing product development capabilities and fostering a culture of continuous innovation.

M&A transactions offer opportunities to consolidate African supply chains and operations in regions with lower risk or a more favourable geopolitical environment. By acquiring companies with strategic locations or complementary capabilities, organisations can fortify their supply chain networks and create redundancies, mitigating the effects of future disruptions.

While addressing supply chain security, companies must also pay attention to ethical and sustainability considerations. M&A transactions can provide an opportunity for organisations to assess and improve the social and environmental practices of their suppliers. By integrating ESG (environment, social and governance) compliance into the supply chain, companies can ensure responsible sourcing, fair labour practices, and sustainable operations, aligning with growing consumer and investor demands for ethical business practices.

SA has seen its share of mergers and collaborations through vertical integration to secure supply chains during and after the pandemic. For instance, in the agricultural sector various farming and food processing companies have merged to ensure a reliable supply of essential goods. In the healthcare industry, pharmaceutical companies have collaborated with medical equipment manufacturers to create vertically integrated supply chains for essential medical supplies such as personal protective equipment and hand sanitisers.

Additionally, in the retail sector retailers and logistics companies have collaborated to establish vertical integration in their supply chain. This allows for more efficient distribution of products, reduces dependency on external suppliers, and ensures a reliable supply of goods to meet customer demand.

These examples demonstrate the strategic measures taken by companies in SA to secure their supply chains and mitigate the  consequences of disruptions caused by the pandemic. M&A transactions offer a pathway to fortify supply chains, drive business continuity, and ultimately thrive in an increasingly volatile and uncertain world.

• Bahlmann is CEO: corporate & advisory at Deal Leaders International.