Raise a Croissant to Acquisitions: Logistics in Kenya

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April 15, 2014

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Fans of Artcaffe raised a celebratory latte in honor of news that the eatery chain intended to make life that much easier for current and aspiring bourgeoisie Kenyans by launching an additional seven locations to bring their total to 11 outlets.

A closer look revealed that these additional spots, veering outside the confines of major shopping malls, had been facilitated by an acquisition deal with Dormans, whose branches are to be relaunched under the Artcaffe brand. Such mergers and acquisitions are commonplace in the business landscaping, including our very own supply chain management industry, with a range of benefits to be gained by absorbing companies within our scope of operation.

Corporate acquisitions in the logistics industry are primarily done in pursuit of growth. This comes in where companies absorbed in a merger bring value to the acquiring company that was previously not available, known as horizontal integration. The purchasing company can acquire new technologies and facilities such as prime warehouses, specialized vehicles and storage facilities, and so forth which they may be unable to get on their own. This also applies to where acquiring said equipment or facilities would be taxing to the company, both in terms of human resources and finances. The company buying the lesser firm therefore inherits a fully installed infrastructure requiring minimal effort on their part.

Purchasing another logistics company would also benefit the buyer with a new range of products within its specialty, thus expanding their product offering. Growth of a supply chain management firm can also be measured in terms of number of employees, which would increase should the purchasing firm elect to retain staff hired by the previous management. Companies can also expand their customer base by absorbing loyal customers of the firm they are acquiring, thus gaining a new market for their own products which can be marketed side by side with the original products.

Acquisition of a company can also be done for purposes of diversification. Here a logistics firm specializing in, say, shipping can acquire a company whose key strength is freighting by road or niche storage services, thereby expanding into an area of the industry that they were previously unfamiliar and uninvolved with. In this way firms can penetrate a given niche market using pre-existing structures, thus reducing the initial investment required to establish themselves independently.

Supply chain management firms can also absorb companies indirectly related to the industry, for instance contractors that maintain or produce specialized machinery for a firm can be acquired to lower costs by having in-house services, or raise revenue by hiring out services to other logistics firms. Supply chain firms can thus achieve vertical integration and control every aspect of their service delivery, to their long term benefit.

Acquisitions and mergers can also be implemented for the purpose of reducing competition. Companies with strong financial backing can buy their way to dominating the logistics industry market share by identifying prime purchase candidates from key competitors and acquiring them, thereby narrowing the race for the top spot in the industry. This motive does come with a caveat: purchasing a thriving business simply to root out the competition is generally very costly to the purchasing company and may antagonize shareholders.

Having seen the benefits of acquisitions similar to the Artcaffe-Dormans deal in our supply chain industry, we wish both companies every success in their new ventures. To fans of Dormans, we send our sympathies, as we raise a croissant to Artcaffe patrons. Have a fruitful day, won’t you?

Photo Credit: Niaje.com

Photo Credit: Niaje.com



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