Large 3PL integrations require patience, processes, and planning

In the 3PL sector, 2015 may be remembered as the year of big acquisitions.  As for 2016, it may end up being known as the year of large-scale 3PL M&A integration.

Three of the biggest 3PL deals that were consummated in 2015 and into early 2016, included

• XPO Logistics matching $3 billion acquisitions of Norbert Denrtressangle and Con-way;
• Echo Global Logistics’ $420 million acquisition of Command Transportation; and
• DSV’s $1.35 billion acquisition of UTi Worldwide

Some of the things in common for each of these deals include the massive scale, scope, pairing and meshing of service offerings, access into different vertical markets and geographies, not to mention the massive price tags, too.

In each case for these respective deals, things have moved quickly and efficiently to get through the acquisition growing pains and get out in front of customers with a bigger playbook, footprint, and service menu.

What’s more it is also important not to overlook that in some cases, these large-scale deals can help to fill a niche or expand or further improve a service offering already in place. That is more of a company-by-company type of thing more often than not.

But for the actual integration processes themselves, they require various views to be sure, ones that both address short-term and long-term goals to get things moving from an inked deal to essentially become a new entity in some respects.

Doug Waggoner, Echo chairman and CEO, explained that one of the first things a large-scale integration requires is taking a long look at the organizational charts for both companies, the buyer and the acquired company, which is what Echo did after buying Command.

“We looked at ours and looked at theirs, and you start thinking about the roles of people and what should the structure look like in a merged entity and that is one aspect of integration,” he said. “That also involves things like compensation for people with the same roles at each company and being able to reconcile or harmonize it so as not to discourage people. Our compensation structures were pretty similar to Command’s, but it still took some time.”

Process management was also a key theme, according to Waggoner, in that although Echo and Command were effectively in the same business, they did things somewhat differently. And he said that left open the decision to handle certain things as one company traditionally did or the other or on the form of a hybrid approach. 

From the beginning of the integration process for the companies, which took roughly 15 months and was completed in late October, Echo and Command wanted to take a “best of both” approach, taking two successful companies in their own right and optimizing best practices across both companies, which requires change management issues with both sets of employees with things both companies require to be taught.

“There is a whole harmonization of the processes and sometimes they can be very nuanced with slight differences that to the casual observer would not seem like a big deal but when looking at the benefits and consequences of the ripple effect of making changes it can be a huge deal,” said Waggoner. “Process work is very important and once you identify and define the new numerous processes you need to think about the technology needed to support those processes.”

As for the technology, Waggoner cited the infrastructure needed to ensure systems are compatible and humming from things like database management and things like apps used to book brokered loads for example. And this requires an intricate approach for meshing platforms and ensuring the “best of “both” approach is truly working.

As evidenced by the 15 month integration period between Echo and Command, including as much time for advance planning as possible can be viewed as a cornerstone for successful 3PL integration, said John Langley, supply chain professor at Penn State.  

“Once a potential acquiring organization enters the due diligence phase, it is necessary to comprehensively plan for how the acquisition would fit strategically and operationally with the acquiring organization,” he said.  “Obviously, there is progress that can be made beforehand with publicly-available information … but the internal access to the details of a potential acquisition should be a very rich source of useful information. I also would suggest it is very helpful to look at a potential acquisition as an enterprise, and also to focus on the strategic and tactical value of its individual businesses and types of processes.  The benefit to doing this will include a better appreciation of how the acquired organization will fit into the footprint of the buying organization, and what elements of the acquired organization should be considered as immediate or eventual divestiture opportunities.”  

A piece of advice offered up for acquiring companies by Langley so for them to focus a great amount of time, effort and analysis on the value to be realized in relation to the acquisition. And while a responsibly-considered buyout price should be considered by the acquiring organization, sufficient accommodation needs to be reserved so as not to lose a highly-strategic acquisition, due to too much emphasis on buyout price.

In order for 3PL acquisitions to be successful, companies need to steer clear or unrealistic timetables for integration, said Robert Lieb, supply chain professor at Northeastern University.

“In publicly traded companies there is real pressure to show the board and the investment community that acquiring a company or companies was a smart move,” Lieb said. “And, the acquiring company often responds to that pressure by trying to show financial benefits very quickly. That puts incredible pressure on the employees to ‘hit the ground running’ but the direction they should be running is typically unclear at that point. This can lead to making bad policy and strategy decisions in a compressed time frame, and fast is not necessarily good.”

And on the IT side, like Echo’s Waggoner, Lieb stressed the importance of systems integration, as it is well know that this is a significant problem in many acquisitions.

“In many cases the acquiring company already has problems within its own organization related to earlier acquisitions, and now they are taking on another company or companies that have similar issues,” he said. “There is no quick fix in this area, but failure to deal with this issue as a high priority can cause significant long-term problems for the consolidated company.”