M&A in commodity trading call for integrated ERP/CTRM software
In September last year, it appeared that the number and the value of Dutch mergers and takeovers has decreased. However, several interesting mergers and acquisitions have taken place internationally in the world of commodities. For example: Danone, the world’s largest producer of yoghurt, recently bought the American food company WhiteWave Foods. Amtrada, the Dutch trade company in coffee, cocoa and nuts, sold its coffee activities to Sucden.
In August 2016, grain trader Nidera was fully acquired by the Chinese Cofco and one month later, Chinese steel producer Baosteel took over its competitor Wuhan. Lots is going on in the oil industry as well, including the takeover of Dutch Inter Oil’s shares by the Swiss company Varo Energy and the acquisition of Ozark County LP Gas by MFA Oil.
CHAIN INTEGRATIONMergers in the world of commodities often involve horizontal integration in which trade companies merge by taking over similar companies. This allows them to achieve economies of scale and enter new markets. It also involves vertical integration of storage and transfer facilities, ensuring production capacity to enable better reactions to sudden shortages.
COMPLEXITY CALLS FOR CONTROL AND INSIGHTThe financial success of a merger or acquisition is driven by turnover and cost synergies. Examples include: consolidation of (main) offices, deduplicating overhead positions, combining purchasing power and rationalizing required assets. A merger or acquisition means expanding the organization and thus making it more complex. This results in an increased need for control and insight. Furthermore, companies taking a strategic approach to M&A need an IT architecture that facilitates acquisitions adequately.
INTEGRATION OF TRADING, LOGISTICS AND FINANCEThe need for more control and insight and the ability to easily integrate new acquired companies is often insufficiently structured by IT. The fragmented software landscape simply cannot provide this insight. A response to this would be implementing an integrated ERP/Commodity Trading and Risk Management (CTRM) solution. In addition to the required support for all company processes of the various departments, this would also offer a functionality that is typical for commodity trading. An integrated ERP/CTRM system provides real-time insight into market positions, contracts, currency positions, prices and logistics agreements and all departments (Trading, Logistics and Finance) would work with the same system. In an advanced integrated ERP/CTRM system it would definitely be possible to work with multiple entities (companies) and with multiple currencies.
Cadran developed a complete module within Oracle JD Edwards ERP, which offers all the necessary functionalities.
Do you want to know all reasons in favor of an integrated ERP/CTRM system? Read this whitepaper: ‘The need for an integrated ERP/CTRM system for commodity traders’.
Author: Ed Pieters, CEO Cadran Consultancy