Reversal of Fortune

PEPSICO - Reversal of Fortune

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It seems that corporate acquisitions have come full circle. In the 80's, behemoth conglomerates fell out of favor as many of them were seen as too fat and inefficient. Over the last decade, specialization and commitment to "core competencies" have been the mantra of Ceo's and supervision consultants.

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Yet a up-to-date trend has emerged as fellowships are going vertical, and seeking out enterprise combinations that improve positioning within the value chain. Our firm has recently worked with any fellowships employing this strategy, at a time when PepsiCo is buying back bottlers they spun off in the 90's, and Oracle is purchasing Sun to which Larry Ellison spewed, "We're in effect brilliant, or we're idiots."

Two converging trends seem to be the impetus to a return of vertical integration.

--- involved computer and distribution systems make integration vital to the success of an organization.
The movement towards thrift and efficiency amplify a basic rule of distribution-the last mile of distribution is the most high-priced (the implication being that it is more important than ever to control the distribution channel).
--- Many U.S. fellowships who have outsourced manufacturing and service overseas are starting to see the upside of owning their suppliers. up-to-date operation begs the question, when do such acquisitions make sense?

Much explore nearby M&A's over the last few years has yielded data that suggests that return on venture in these deals is realized through incremental revenue, not through cost cutting and efficiency. With the staggering costs of completing such deals, shaving a point or two of margin does not supply a very enticing payoff.

Thus fellowships seeking alliances and mergers should be focused on acquiring fellowships that complement their enterprise in a natural and synergistic way. For example, buying a supplier of capability parts provides the chance of integrating systems which may optimize inventory, improve cycle time and improve the buyer experience. If such synergies translate into more revenue, vertical integration can conduce to both the top and lowest line.

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