• Alex Cook, M&A Integration Partners

Avoid the M&A FOMO Trap

Updated: Jul 19, 2020

After the deal is done, the post merger integration plan is fundamentally based on the deal objectives (the why) and agreed sources or value or synergies (the what) that was valued in during due diligence and the deal process.

In basic terms, a synergy is realised from a merger when the combined value and performance of two companies or entities is greater than the pre-merger value of both entities combined. For example, if Entity One is valued at $150M, and Entity Two $50M, and the merged entities value is $250M, there was a $50M synergy that resulted from their merger.

Hard synergies are primarily captured from cost savings from a more efficient merged entity. Soft synergies are derived from new net revenues or customer opportunities. Less tangible soft synergies may include a merged corporate culture that is more aligned and productive than before.

Cost Saving Synergies

During the business integration phase, it is imperative that customer disruption is minimised while preserving strategic vendor relationships. Here is a sample of the typical cost saving synergies that need to be delivered quickly and efficiently during post-merger integration.

1) Reduced Net Operating Costs

  • Double-up wages and salaries

  • Insourcing vs. outsourcing

  • Reduced professional service fees

  • Combined head office functions

  • New virtual world occupancy costs

  • Inbound patents

  • Consolidated vendors

  • Inbound best practices

2) Leveraging Supply Chain Efficiencies

  • Network footprint and logistics optimisation

  • Inbound supplier partnerships

3) Merged Sales and Marketing

  • Rationalised products, channels, and territories

  • Integrated brand and promotional spend

  • Integrated CRM

4) Shared IT

  • Integrate right-fit proprietary IT systems and processes

  • Insourced vs. outsourced IT

5) Integrate Research and Development

  • In coming innovation and R&D potential

6) Capital Optimisation

7) Talent Productivity

  • Integrate the best talent

  • Attract new talent to the stronger NewCo

Net Revenue Synergies

1) Bundling complementary products

2) Better market coverage

  • Increased geographic coverage

  • New complementary channels

3) Strategic pricing opportunities

4) Inbound patent opportunities

  • Accelerate new product development

Avoid The Synergies Trap

There has never been more synergy haze for Executive Teams to work through as they consider M&A decisions. This haze includes;

  • New to market technology, partnership, and out-sourcing models – These synergies are typically over-stated in business cases.

  • FOMO psychology – M&A contributors often over-promise M&A synergies to ensure the acquisition or merger is actioned.

  • Covid-19 social distancing – These impacts are not yet understood but still need to be reflected in business cases going forward.

Our experience has shown how important it is to involve the Business Integration Leader early in the M&A process to independently audit the size key synergies. The final business case is then more authentic and enables the Executive Team to make better decisions.

Agreed deal objectives and synergy targets can confidently be baked into the Business Integration Plan and delivery team structure.

About M&A Integration Partners

We specialise in leading the execution of our client's POST MERGER INTEGRATIONS to deliver targeted value with minimal disruption. We support mid-market organisations who do not right fit leaders, capabilities, and tools to ensure a successful post merger business integration. Our experienced Business Integration Leaders work our client’s business to:

  • Lead and stabilise the entity to be integrated

  • Assemble and lead the Business Integration Team

  • Design and build the Business Integration Roadmap

  • Lead the Business Integration Program and mitigate execution risks

  • Identify new synergies to enhance the original business case

  • Measure outcomes and update executive sponsors

Our Business Integration Leaders are experienced VP/EGM level leaders with a deep understanding of business fundementals, M&A, and Post Merger Integration.

Please contact M&A Integration Partners to discusshow we can support your M&A activity.

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