DC Velocity - January 2016

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56 DC VELOCITY JANUARY 2016 www.dcvelocity.com mobility to leave the acquired company as the integration of the two enterprises proceeds. Given the chronic shortage of management talent in the 3PL industry, this issue also demands considerable attention from upper-level management post-acquisition.

Systems integration. Many 3PLs have invested enormous amounts of money in developing systems to not only assist them in their operations, but also to differentiate themselves in the eyes of existing and potential customers.

Because of limited capital availability and the size and geographical spread of many large 3PLs, it is not uncommon for different business units of the same company to have different information systems that are not linked. Many of the acquisition targets of those companies are in the same situation. Consequently, the acquiring company often faces a daunting challenge in attempting to integrate not only its own systems but also those of the acquired company. This is costly and time consuming, and it is not uncommon for the two companies to continue to operate their systems separately for a significant period of time due to the potential disruptions and enormous costs caused by those integration efforts. This is a less-than-optimal situation and often leads not only to a significant lag in the realization of cost savings, but also to interface problems with

3PL vendors, alliance partners, and customers.

It should also be noted that the accounting systems used by the two enterprises are often not compatible, the importance accorded to specific performance metrics by the companies may vary dramatically, and data that is considered critical by one of the companies has not historically been collected by the other. The cost of eliminating these data-re-lated problems is often much higher than anticipated.

Realization of multimodal synergies. Several of the recent mergers and acquisitions have brought additional modes of transportation under the control of the acquiring 3PLs for the first time. It is quite challenging to realize the potential synergies among those modes and harness them in a way that delivers a more attractive value proposition in the marketplace. The characteristics of the various transportation modes and their operations vary dramatically, and recognizing those differences and combining them in ways that not only benefit customers but also the combined companies will pose a significant challenge.

Cultural integration. Executives who have been involved
in M/A activities often stress the importance of a good
cultural fit between the two companies. The workplace
environment, workload expectations, reward systems, com-
munications networks and styles, and many other factors
will affect the success of any integration effort. This is even
more complex when the transactions are multinational in
nature. The formality of the interaction between managers
and subordinates, adherence to chain-of-command proto-
cols, and language problems are but a few of the issues that
arise in such situations. Failure to identify and consider
major differences between the cultures of the two compa-
nies pre-acquisition, and to plan accordingly, can lead to
costly conflicts in attempting to reconcile these differences
after the acquisition.

Brand identity. In an industry that lives in constant fear of commoditization, most large 3PLs devote considerable thought and resources to establishing a corporate brand identity that differentiates the company from its competitors. In building their brands, 3PLs may emphasize numerous factors, including such things as their technology, expertise in a particular geography, past history in serving particular industries, collaborative approach to working with clients, or history of innovation. If their branding efforts have succeeded, existing and potential customers recognize the company based upon those features.

In many instances, the company that is acquired has a very different brand identity. This can lead to market confusion about the brand of the new, combined enterprise, which can be very disconcerting for customers who are considering renewing 3PL contracts or signing one for the first time. It’s important for the key customers of both companies to be reassured that the new enterprise will use the strengths of both to provide an even better service experience for their customers at competitive prices. In many instances, the acquiring company rebrands the acquisition to reduce this confusion. While some companies take several years to do this, others do it immediately. XPO Logistics, for example, stated in its initial press release announcing its agreement to acquire Con-way that all of Con-way’s business units would be rebranded as XPO Logistics.

In addition to addressing branding issues, it is also very important for the new enterprise to reconcile significant differences in the sales and marketing strategies of the two companies. In many instances, those companies have had common customers, and they must address such important issues as who “owns” the customer post-acquisition. At the same time, it is to be expected that shared customers will now want to “bundle” the services they have historically purchased from the two companies and will negotiate aggressively for lower rates on the now-collective buy.

Relations with existing customers. For many 3PL customers, acquisitions may cause considerable anxiety. Their concerns range from uncertainties about the quality of the services they will receive from the merged enterprise to the relative importance that enterprise will accord them in the future.