The work of capturing synergies, especially revenue synergies, is reminiscent of the heavyweight boxing match in “Rocky IV.” High expectations are set, with the anticipation that the world is watching. Despite thorough preparation, you’re up against a formidable opponent, enduring a grueling 15-round battle that tests your strength and resolve!
Understanding Synergies
Synergies represent the additional value created when two companies merge. If you like, they are the 2+2=5 of a deal. These synergies are categorized into three main types: revenue synergies, which refer to increased sales opportunities; cost synergies, which involve the reduction of overhead and operating expenses; and financial synergies, such as the benefits of a stronger balance sheet leading to lower interest rates.
The Importance of Synergies
Achieving synergies are important not just because they contribute to the financial strength of the buyer’s business, but also for justifying the acquisition itself. Synergies are often pivotal for meeting a buyer’s return on investment (ROI) expectations. The ‘failure’ of an acquisition often manifests itself in unrealized synergies.
Deal announcements by public corporations will often state that the buyer anticipates achieving synergies from the deal. Sometimes they will even be brave enough to commit to a minimum dollar figure for the costs they will save and additional revenue that the combined business will generate once integrated!
Achieving Synergies
The process of identifying, evaluating, and ultimately capturing synergies begins early in the acquisition process (at or before the letter of intent is agreed) and continues more rigorously post-close. Responsibility for capturing synergies falls to the integration team, under the watchful eye of the integration management office (IMO), with synergy realization being a central focus of their efforts and a key metric of success.
Challenges in Capturing Synergies
Several challenges make synergy capture difficult. First, the exhaustive process of acquiring a company can deplete the buyer’s team’s energy, often they will prefer to divert focus back to the core business operations. Secondly, synergies often require significant changes that can disrupt the work environment (particularly when job losses or role changes are involved); this often results in resistance to change the can derail integration activities. Thirdly, the complexity of achieving revenue synergies in a B2B context is often underestimated, especially the intricacies of cross-selling.
Also, as time marches on, the natural lifecycle of the buyer and target tends to muddy the waters, making it hard to determine whether revenue growth was a result of efforts to capture synergies of just normal organic growth.
CNP’s Key Tips for Successfully Capturing Synergies
- Focus: at both the level of the overall integration project and at the individual work streams, the integration team should focus their efforts on a small number of synergistic objectives.
- Talk money. Make financial literacy are core competency of the integration team.
- You can’t manage what you don’t measure: set clear targets, tracks these with a consistent cadence of the life of the integration. Celebrate when synergies targets are met; act when they will not be.
- Educate and motivate for cross-selling success: make sure that the sales folks in both the buyer’s business and the acquired business understand the product/service offering of the other. Training, shadowing and other means should be used. Also, endeavor to create a sense of common identity so that the sales
- Ensure Accountability. Have a single named individual who is accountable to the integration’s steering committee for delivering each of the synergy targets. Progress against synergies should be an agenda item at every integration steering committee meeting, everyone.
- Promote Open Communication Channels: Establish clear and open communication across all levels of both organizations to foster transparency and address concerns promptly.
- Leverage Technology and Data Analytics: Utilize advanced data analytics and technology to identify and monitor synergy opportunities, enabling more precise decision-making and tracking.
- Customer-Centric Approach: Keep the customer perspective at the forefront when integrating products or services to ensure that synergy efforts enhance customer value and satisfaction.
- Innovative Collaboration: Encourage teams from both organizations to collaborate on innovative projects that can lead to new revenue synergies.
- Sustainable Value: Incorporate long-term viability in the synergy planning process to ensure that benefits are enduring and align the long-term objectives of the combined business.
Have question about post-merger integration? Want help to identify, track and capture synergies? Reach out to the CNP team today.
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