Synergies in M&A

Synergies in M&AA Framework for Value Creation

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Contents

Introduction ...........................................................................................................................................3

Levers for Value Creation ....................................................................................................................5

Strategy for Value Creation ............................................................................................................. 15

Critical Success Factors in Value Creation .................................................................................. 21

A Framework for Value Creation .................................................................................................... 25

1. Estimating Synergies .......................................................................................................... 25

2. Planning for Value Creation .............................................................................................. 29

3. Executing for Value Creation ........................................................................................... 35

4. Tracking for Value Creation .............................................................................................. 39

5. Monitoring and Reporting for Value Creation ............................................................... 41

IntroductionFinancial synergies and the pursuit of value creation is the key driver of M&A for most companies – yet so many M&A deals fail to deliver on the promise of value.

We’re all familiar with the statistics – historically, approximately 50% percent of M&A deals fail to be accretive or result in increasing shareholders’ returns. What’s even more interesting is that this figure hasn’t changed substantially in over 30 years (Figure 1). On an optimistic note, we believe that acquirers can take positive action to significantly improve the odds of M&A delivering value. Accordingly, this guide provides a comprehensive framework intended to help M&A teams extract the most value from their deals across a number of key areas. There’s no rocket science – just a collection of best practices we’ve seen some of the most successful acquirers follow.

A wealth of market data and independent research suggests a multitude of reasons behind M&A failing to deliver: poor strategic fit, failure to highlight risks and

issues in due diligence, cultural differences, an inability to implement change in the new organization, poor program management, exogenous market conditions…all of which typically lead to a failure to deliver synergies.

The term synergy is regularly overused in the M&A lexicon, especially by some investment banks, deal brokers and consultants, all promising them in abundance and easily delivered – provided you don’t worry too much about the details. Nevertheless, adding value to a combined business is usually the point of M&A and senior executives regularly – and rightly – cite challenges delivering financial synergies as one of the key reasons for M&A not delivering.

For the uninitiated, synergies can be thought of as improvements that companies party to an M&A deal

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Deal value ($tn) Deal count (‘000s) Source: Institute of Mergers, Acquisitions and Alliances

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Global announcedM&A deal value

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“50% of acquisitions dissipated shareholder value”Porter, Harvard Business School, 1987

“42% of acquisitions destroyed value 24 months post-close”Accenture, 2013

“53% of acquisitions underperformedindustry peers, on average, over the 24 months following completion”PwC, 2019

Figure 1: M&A Volumes and Performance

Synergies in M&A: A Framework for Value Creation

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would not have achieved as standalone entities. These can be categorized in terms of the financial statements they impact (e.g. P&L, balance sheet, cash flow). One-time or ongoing financial synergies are associated with cost savings or revenue increase (mainly impacting the P&L) while capital synergies typically relate to one-off or ongoing improvements in financial/capital performance such as working capital cycles and borrowing costs (mainly impacting the balance sheet and cash flow statement).

Synergies might be – in fact, often are – overestimated, take too long to deliverer or are not delivered at all, while the costs to achieve synergies are often underestimated or overlooked. Additionally, “negative synergies” – those cases in which ongoing operating costs go up, not down post-close (e.g. due to the need for additional headcount in accelerated growth areas) – are all-too-rarely considered. Whatever the exact reason, the outcome is often the same: M&A deals that under-deliver value.

It’s easy to overestimate synergies – perhaps to justify an aggressive deal price or incorrect valuation assumptions caused by a lack of reliable data gathered during due diligence. However, the reality cuts both ways: many companies are not only overestimating

synergies – they are also failing to fully comprehend the full potential of synergies available from a deal.

When you pause to think, it’s not surprising that some synergy sources are going untapped or overlooked. The nature of today’s deal making has evolved greatly from the days of M&A purely for scale and revenue growth. Rather, today’s M&A may be predicated on the basis of companies seeking to become market leaders; access to new organizational capabilities, products, services, technologies and IP; access to increasingly affluent consumers in emerging markets, de-risking/diversification of a group, and even securing key talent in the market (just think of the acquihires prevalent in Silicon Valley).

Despite conventional wisdom regarding the need to focus on operational stability on Day One – value creation (i.e. taking positive steps to capture value from a deal) is the number one thing that deal makers say they should have focused on (see Figure 1).

Value creation needs a broader and more intense focus

Though only 34 percent of deal makers prioritized value creation, 66 percent said that it would be a top priority if they were to do another deal.

Question: What were your priorities on Day One, and what should they have been?

Should have been priorities Actual priorities

0%

10%

20%

30%

40%

50%

60%

Value creation

Operational stability

Client/customer retention

Human capital optimization

Talent retention

Changing operating model

Rebranding


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Figure 2: Day One Priorities Source: Strategy Business.com, June 2019

Levers for Value CreationCarefully managed, financial synergies should contribute to business value beyond the sum of the parts of two companies – new revenue channels, access to new geographies, cost rationalization, streamlining of operations, divesting of surplus assets and realignment of market positioning.

The exercise of defining high-level “in principle” synergies is insufficient as a rationale for M&A unless you clearly define each synergy and how it will be delivered up-front, pre-close. Identifying and estimating synergies requires a judicious and systematic approach – yet even experienced acquirers can be overzealous in their estimates of the value that can be captured by a deal. Accordingly, the approach to identifying and estimating synergies should be one of realism, with focus maintained on protecting existing operations to maximize the chance of a deal being accretive.

When it comes to value creation via financial synergies there are three main levers an acquirer can pull: cost, revenue and capital.

Cost synergies are associated with one-time or ongoing cost savings achieved via eliminating duplicate functions, rationalizing spend, reducing relative headcount and driving overall cost efficiencies through operations, etc.

Revenue synergies contribute to top-line revenue growth – for instance, via cross-selling of products/services, price increases, or new channels such as a customer demographic or geography, etc.

Capital synergies target one-off or ongoing improvements to the financial statements – namely the balance sheet and cash flow – such as through enhancements to the working capital cycle, realizing value from surplus/idle fixed assets, avoidance of planned investment and reductions in borrowing costs/cost of capital.


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A Word on Cost SynergiesCost synergies are made possible when a lower cost base (than on a standalone basis) can support the operations of the two companies coming together; or when – even if not fully integrated – either organization has an opportunity to reduce their cost base to a level not possible pre-close. A reduced cost base might, for example, be the product of more favorable supplier terms via economies of scale, removal of duplicate functions (both people and property), adoption of more cost-effective practices, rationalization of procurement spend (materials, but also, e.g., software license, subscriptions to professional bodies) or more efficient use of fixed assets. The exact source of cost synergies will differ across specific deals, the driver of deals and industries/verticals, etc. That is to say, there is no one size fits all approach.

Compared to revenue synergies, cost synergies are typically easier to estimate and more reliably quantified. Part of the reason for this is that many cost synergies are based on hard facts set out in the P&L rather than lofty assumptions and best-case scenario guessing. Cost synergies can also be more readily controlled/influenced than revenue synergies (see below). Overall, cost synergies are more likely to be realized in the short term and are therefore more likely to drive the rationale of a deal. However, be warned: studies show that cost synergies are also notoriously difficult to sustain in the medium and longer term if costs are reduced too drastically or too quickly without implementing the necessary changes to processes, organizations and IT systems needed to support a different (more efficient) operation. Without these, terminated employees are often replaced six months later with less experienced new hires, or worse still with even more expensive contract staff.

Cost synergies can be estimated quite accurately, especially when the line of business and target company are well understood. Even though cost savings can be the easiest type of synergy to achieve, the time required to realize them is typically

underestimated, leading to value realization schedules that differ from the original plan and cause surprises in cash flow planning and synergy reporting.

A number of different cost saving types are possible but come with a variety of restrictions. Some matters regarding fixed cost reductions to consider include:

Economies of scope by reducing overlapping functional costs (in general, by way of consolidation) are often accompanied by increased costs in the unified function (e.g. eliminating the acquired HR department with ten individuals may require an increase of two or three in the acquiring organization to take up the workload).

Consolidation also creates costs – for example, local country regulations, implementation of new (more sophisticated) policies and processes and trade union agreements can increase operating costs and delay implementation.

Change is always hard to implement, and if planned or executed poorly, management and staff can resist reductions to the workforce.

When considering variable cost reductions:

Increased purchasing volume, increasing bargaining power and supply chain productivity are common routes and often relatively easy/quick to secure. Don’t forget that these can include utilities, software licenses, warehousing and logistics, subscriptions and other non-material items, etc.

Banking and insurance costs, etc. are also options for value capture and can offer considerable savings as the weighted average cost of capital (WACC) decreases and negotiating leverage increases.

Indirect cost savings via increased vendor confidence and cooperation (e.g. improved payment and credit terms).


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VALUE LEVER RATIONALE CHARACTERISTICS REPRESENTATIVE EXAMPLES

Cost Synergies

Reduction of variable and fixed cost bases via reduced spending, efficiency gains, economies of scale, structural advantages (e.g. rationalization of legal entities or real estate/locations), etc.

• Relatively easy to achieve in the short-term but can be more difficult to sustain long-term.

• Typically quantified by functional workstream area (e.g. finance, IT, etc.).

• Cost synergies are often pursued since they are more tangible than revenue synergies and, in some instances, can offer relatively “easy wins”.

• Main impact is on the P&L – i.e. cost of goods sold/COGS (driving gross margin improvements) and selling, administration & general costs (SG&A) – therefore contributing to EBITDA increases.

• Cost synergies are mainly in control of the business (as opposed to being influenced by exogenous variables – see Revenue Synergies, below).

• Back office consolidation.• Indirect supply chain procurement spending/

economies of scale via purchasing of goods/services (consolidating vendors).

• Removal of duplicate functions (including people).• Harmonization of compensation and benefits.• Harmonization of shared services.• Rationalization of IT software and hardware.• Reduction of legal entities.• Rationalization of locations (e.g. stores, offices,

warehouses, branches).• Rationalization of product/service offering.• Sharing of existing best practices.

Revenue Synergies

Overall increases in revenue via initiatives such as cross-selling of products/services, price increases, access to new customers and entry to new markets (domestic and/or international).

• Relatively difficult to achieve in the short-term (take more time to establish), but once delivered, are generally more sustainable.

• Typically quantified by growth initiatives (rather than on a functional workstream basis).

• Often influenced by external factors such as customer and competitor response to a deal and the macroeconomic environment.

• Typically come with additional absolute costs to the business (e.g. increased sales headcount, CRM enhancements), but should still result in lower relative costs (e.g. COGS as a % of revenue).

• Relate to revenue, pricing and discounting.

• Selling new products/services to existing customers.• Selling existing products to new customers in the

sales channel.• Access to new customers (e.g. different market

segment/demographic).• Access to new geographies (international market

entry).• Product bundling and offering of new complimentary

products/services – bundling can result in higher revenue and margin.

• Creation of new products or solutions.• Price increases as a result of improved offering made

possible by the business combination.• Increase pricing via a more concentrated market/

reduced competition.• Cross-selling of products/services to existing

customers.• Sharing of sales distribution channels in existing

markets.• Increase in buying potential customer base.• Product life extension.• Development of new products(s)/feature(s)/

solutions(s) as a result of combined operations.

Capital Synergies

Benefits associated with judicious tax planning and a revised tax structure, increased debt capacity, working capital efficiencies and enhanced cash flow, etc.

• Applicability dependent on the nature of the deal.

• Quantified by operation.• Relate to accounts receivables,

accounts payables, inventory, cost of capital, corporate tax rates, etc.

• Varying degree of control of the business.

• Relatively easy to achieve and sustain but still have to be “worked”.

• Alignment of payment terms for customers and suppliers.

• Consolidation of safety stocks.• Tax efficient models.• Hedging of FX.• Improved financing costs (more favorable interest

rate).• Increased debt capacity and ability to leverage.

Table 1: Levers for Value Creation


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Process Improvements

The transfer of best practices and core competencies in either direction between the companies party to a deal can lead to process improvements, which in turn, lead to cost synergies. The impacts of process improvements can be many, and their timing can vary considerably. Some considerations to note include:

Financial reporting methods can generally be improved relatively quickly – however, unless this leads to reduced headcount or software changes, financial synergies are rarely the end result.

Process improvements can create both cost savings and revenue enhancement (costs to achieve can also be incurred).

Given the challenges associated with embedding process changes, synergies tend to materialize rather late (sometimes taking years).

Do also keep in mind that in many cases, process improvements are a prerequisite to other operating cost reductions (especially those related to headcount reductions). So, whenever someone proposes any operating cost reductions, always ask the “process” question.


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A Word on Revenue SynergiesTaking a selection of M&A deals, the value ascribed to revenue synergies is typically much lower than for cost synergies – the belief being that revenue synergies are illusive, unachievable or even “the icing on the cake”. As above, costs are more easily identified, and tangible given they are based on hard facts. Revenue synergies, conversely, can be difficult to identify and estimate/quantify, are heavily influenced by exogenous variables (such as reactions from customers and the wider market), and thus, less reliance is placed on them as a lever for value creation by many deal teams. And when it comes to measuring revenue synergies it can be difficult to distinguish between the benefits derived from a dedicated synergy capture program and what relates to organic business-as-usual growth.

However, the opportunities relating to revenue synergies can be hugely significant and typically offer much more potential upside than cost synergies (costs can only be reduced so much). For instance, synergy opportunities linked to new pricing strategies, bundling of products/services, and entering new markets are worthy of pursuit and can contribute to long-term value creation. Long-term studies also consistently show that revenue synergies realized through M&A are also typically easier to sustain if and once achieved. In practice, experienced acquirers usually pursue a mix of both cost and revenue synergy targets for every acquisition. We therefore recommended that revenue synergies are given due consideration and not neglected.

Price management can potentially offer high-impact and faster returns than other revenue synergy areas while requiring relatively less organizational change. Sales operations and customers expect change after M&A, so the window of opportunity to implement price changes can be short. It’s therefore important to be prepared so you can exploit this short window for change.

To benefit from pricing changes, analysis needs to take place during integration design and planning. There are, of course, some limitations/risks associated with using pricing as a value creation lever:

Customers will probably not feel they gain additional value to compensate for the price increase (unless you are credible in telling them otherwise). In fact, significant differences in pricing between similar sets of products across the deal and being public about your ambitious cost-reduction goals, are likely to drive an expectation from customers that prices will go down to at least the lowest common price-set, if not even lower. Managing expectations with your customers to avoid this is therefore critical.

Price information is sensitive – therefore, the target company might not share detailed pricing information in the planning phase, leading to inaccurate assumptions related to revenue synergies and delays in their implementation.

Anti-trust/competition regulations might prevent or limit the sharing of price, customer and product information during the pre-deal planning phase. A solution to this is to use a clean team/clean room to conduct the analysis and lead the integration design and planning (see Consider Using a Clean Team).


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Market Power Synergies

Elimination of excess capacity from the market can be one way to impact market power synergies. This can be achieved by way of:

Maintenance or increase of prices

Improved margins

If an acquirer’s intention is to exploit market power synergies, it’s extremely important to plan internal/external communication ahead of time to avoid or manage any market backlash. For instance, talking directly about the elimination of excess capacity is a sensitive issue to all involved and can promote worries around potential price increases or monopolistic behavior.

A Word on Capital SynergiesSometimes an afterthought to operational (cost and revenue) synergies, capital synergies can be a major lever of value creation. Capital synergies are largely internally controlled, therefore typically easier to model and estimate than revenue synergies and thus more reliance can be placed upon them. However, they should not be taken as given and need to be “worked” to be captured. Such synergies may arise when the combined companies are able to benefit from a lower cost of capital (than on a standalone basis), a lower tax base (for instance, via utilization of tax losses to optimize income), increased debt capacity and lower interest rates on borrowing, leveraging against a larger balance sheet and new opportunities to hedge foreign currencies, etc.

Capturing financial synergies may, in some cases, be quick and relatively easy – but in other cases, can be difficult and require longer to plan and capture. Faster synergy capture can be achieved via:

Re-financing debts and reducing borrowing costs as company size increases and risk profile reduces;

Increase company size could allow for pooling of working capital financing requirements;

Improved FX position and hedging capabilities.

Like all others, capital synergies that take time and require pre/post deal planning are often captured with the help of external advisors – these may include:

Synergies based on an expected lower cost of capital. Some synergies may materialize though optimized taxes or by lowering financial costs (e.g. reduction of overlaps/benefits of scale);

Synergies relating to tax planning and structuring are likely to take time to achieve.

“Hard” Versus “Soft” Synergies

So-called “hard synergies” are frequently associated with less positive aspects of M&A, such as job cuts and other cost rationalization processes. While this is undoubtedly true in some instances (a newly combined organization is unlikely to require two finance functions, for instance) hard synergies can just as easily entail leveraging the increased size of the new organization to benefit from greater bargaining power and economies of scale. From our perspective, hard synergies comprise all three of the synergy categories mentioned above.

“Soft synergies” (sometimes referred to as “capability synergies”) may arise via incremental revenue increase opportunities facilitated by the new combined organization: things the two groups can do together that they could not separately; new strengths and capabilities which may not deliver measurable financial gain in the near term but which should enable or release financial benefits at some point in the future. Soft synergies can include accessing new geographies that complement the acquirer’s existing operations,


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therefore helping create a new base from which to grow. If the products/services of the two companies merging have the same target customer base (but are sufficiently different) identical or overlapping geographies can be beneficial since the same customers can benefit from access to a wider variety of options – while strengthening the reach of the new organization.

R&D and patents/intellectual property can also be a rich source of soft synergies. They can foster the development of entirely new product/service offerings or accelerate new product development output. While typically considered as a key aspect of a group’s operating model post-close, another “soft” synergy that may arise is a common corporate culture, which can help to unify the new organization and ensure both companies coming together work as one. At the same time, a “clash or cultures” can quickly derail a deal and value creation efforts – so, all acquirers are recommended not to ignore the “human side of M&A”.

While soft, such synergies can require – and be realized through – a fundamental transformation of the combined business (e.g. core operations, processes and/or business units) leading to significant potential for innovation and breakthrough performance. However, transformational deals involve a level of complexity that can go beyond the capabilities of the current management team, potentially bringing operations to a standstill if not properly managed. Delivering organizational transformation inevitably requires a disproportionate amount of management time and attention, so companies undertaking transformational deals and looking to capture associated synergies should thoroughly and objectively evaluate their ability to do so before embarking on such a journey.


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Identifying Synergy Sources

An early challenge encountered in the pursuit of value creation is the actual identification and estimation/quantification of synergies. In terms of identification of synergies, in the early stages of a deal an acquirer would be wise to consider the four value levers (cost, revenue, capital and capability) and ask themselves which levers offer the potential for synergies. The relevance of a synergy lever will depend on the nature of the deal – while all of these levers typically have a role to play, not all of them will feature to the same degree from one deal to the next.

Potential synergies will first become apparent in the process of researching a target in the early stages of discovery (and certainly before due diligence). However, it’s important to note that synergies identified in the early stage of a deal should be regarded as hypothetical only. The different methods of estimating synergies can create a wide range of potential valuations for the combined organization. So, while acquirers must find resourceful ways to ascertain how a target could be accretive, they must also acknowledge that it is not until later in the due diligence process when things become clearer (and typically, only absolutely clear post-close!).

Identifying synergies can be especially challenging given the existence of “dis-synergies” – where the combination of two companies can be dilutive. Furthermore, post-close integration problems and/or business distraction can lead directly to temporary synergy underperformance – for instance, as a result of higher than expected customer attrition, reduced employee motivation or lack of a clear strategic direction post-close. Indeed, when two companies in the same industry merge, it’s possible that combined revenues may initially decline to the extent that operations overlap – with some customers becoming side-lined or choosing to go elsewhere. For a deal to benefit shareholders, realizable cost-saving opportunities should exist to offset any such revenue reductions. In other words, the synergies deriving from the merger must exceed the value initially lost.

It is not possible to know with complete confidence the extent to which an acquisition will be accretive (or dilutive, if things go wrong) until the deal has closed and post-merger integration is well underway. Nevertheless, a comprehensive understanding of synergies and how they relate to each other at the earliest outset of the acquisition process is critical to ensure your integration planning is relevant and focused, to prevent overpaying for a target, and to ensure that “bad deals” are dropped early in the discovery process. A solid synergy analysis validated through detailed integration design and planning pre-close helps successful acquirers do fewer – but better – deals.


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Synergy Sources by Prioritization and ValueThe most popular synergy sources (defined as those deal teams are most likely to target) do not necessarily align with the value they generate (see Table 2, below). As part of the due diligence and integration planning process, it’s therefore important to consider the value that synergies will create and the timing of their delivery rather than just targeting those that are most popular or those that have been key to prior deals and integration efforts.

There’s not a universal approach to developing a synergy strategy. As a starter, however, it’s imperative to understand the key drivers of the deal, how these translate into tangible, executable, “SMART” (SPECIFIC, MEASURABLE, ACHIEVABLE, RELEVANT, TIME-BOUND) integration goals (see example below) and the design of the right post-close operating model (and therefore degree of integration) to support their delivery and the long-term business strategy. Understanding these points will guide you in the direction of possible synergy sources. Ultimately, the synergy sources targeted should be driven by

an acquirer’s strategy and the ultimate rationale and objectives for the acquisition.

Once identified, understanding how the post-close operating model will need to be changed to deliver synergies will provide the “missing link” between acquisition aspirations and post-close implementation. There are many good ways to design the different aspects of an operating model (such as BTD’s, below - Figure 3), provided an acquirer assiduously considers each and every component and how changes to one area may require changes to others (e.g. processes and systems, incentives and culture, etc.).

MOST POPULAR SYNERGY SOURCES COMMON SYNERGIES BY VALUE

IT and Technology People

Procurement Operational improvements

People Procurement

Sales and Commercial Infrastructure

Shared services Shared services

Infrastructure/Locations IT and technology

R&D Sales and commercial

Logistics and Supply chain Logistics and supply chain

Operational Improvements R&D

Legal Entity Rationalization

Table 2: Synergy Sources by Prioritization and Value


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Designing a post-close operating model specifically to deliver the synergies (Figure 3) will help minimize the degree of change or integration required (so reducing

cost,risk and business disruption) while also ensuring that the broader implications of any proposed changes are revealed (Figure 4).

ACQUISITION RATIONALE 2020 OBJECTIVES INTEGRATION TARGETS

Figure 3: Synergy Mapping

Figure 4: Post-Close Operating Model – Typical Areas to Consider (BTD)

Sell 150,000mT in 2020

Maintain minimum ASP of €2.7 in 2020

Improvements in Capacity, Utilisation & Quality

Maximum direct headcount of 890

Maximum overtime of 20% of available shifts

Average Raw Materials Procurement Costs below

€1.68/kg finished prod.

Energy Costs below €0.12/kg finished prod.

Maximum indirect headcount of 225

Catch-up Maintenance below €3.5M

Integration Costs below €8.0M

Generate €420M in 2020

Produce 151,000mT in 2020

Maximum 2020 Direct Labour Cost of 9.0% of

Gross Sales (€37M)

Maximum 2020 Direct Procurement Cost of 62% of Gross Sales (€251M)

Maximum 2020 Overheads of 7.0% (€28M)

Maximum Integration costs of €11M in 2020

Achieve EBITDA of €11M in 2020 (Stretch

Target of €17M)

Achieve EBITDA of €11M in 2020 (Stretch

Target of €17M)

Achieve EBITDA of €35M in 2020

Culture, Values & Behaviours

Data, Information & Insight

Personal Skills & Experience

Organizational Structure, Roles & Responsibilities

Brand & Market Proposition

Organizational Capabilities

Customers, Suppliers &

Business Partners

Legal & Financial Structure

Products & Services

Processes, Systems &

Governance

Physical Assets & Technologies

Intellectual Assets & IP

Metrics, KPIs & Incentives


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Strategy for Value CreationValue creation is the reason, driver and measure of any M&A deal. M&A is not an easy or cheap way of achieving growth – in fact, it is usually the riskiest and least likely to succeed, but if done well, remains the best (and in some cases only) way to grow quickly relative to other organic options.

In publicly listed companies, value increases (or decreases) are continually monitored after a deal has been announced. Market reactions indicate confidence (or lack thereof) in the acquirer’s ability to deliver synergies and increase value, considering factors such as the price paid, credibility and capability of leadership and the overall likely success of integration and the business post-close. Furthermore, initial reactions from key customers can provide a good indicator – especially in private acquisitions (these are the only true indicators available until operational performance data and financial results begin to accumulate).

Developing a value creation strategy at the start of target evaluation then detailing and refining it through the pre-deal exercise is a critical activity that should be undertaken to drive both the deal process and integration design and planning. Doing so will ensure that you:

Make value expectations/forecasts more realistic;

Focus on the most important value drivers during due diligence (to test their achievability), across valuation (to improve assumptions and understand sensitivities) and into deal negotiations (to understand strategy and red lines);

Quantify key details and timings in the “synergy Map” - see Figure 3;

Include negative synergies and value creation costs (i.e. costs to achieve synergies) in the overall valuation model;

Focus/prioritize changes to the operating model, and the subsequent initiatives that comprise the integration plan;

Are specific in the communication of value creation goals to employees and the markets post-close;

Identify early warning signs of a deal that should no longer be pursued.

Value Creation PhasesValue creation should underpin and shape all other M&A activities – not only those mentioned above such as due diligence, but also the transaction management itself (i.e. deal-making), and of course, integration design and planning, communications and integration execution. Using the analogy of an investment, the value creation process can be thought of as covering three distinct phases. Each phase includes decision points which impact value creation. The phases are:

Acquisition (Investment) Decision

Promise/Expectation Building

Value Realization


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ACQUISITION DECISION (PURCHASE PRICE)

PROMISE/EXPECTATIONS = ANNOUNCEMENT & DAY ONE

VALUE REALIZATION = INTEGRATION

• Strategy• In house gap analysis• Value increase potentials• Initial estimate for synergy value drivers• Deal price limits• Due diligence• Post-close Operating Model design• Integration plan• Integration cost estimates• Business risk analysis• Deal negotiations• Final purchase price• Governance for final review and

approval

• Market reactions• Customer reactions• Employee reactions• Competitor reactions

• Leadership engagement and cultural issues

• Securing continuation of on-going business

• Securing cash flow and finance• Putting synergy value drivers to work• Negative synergies• Integration costs• Divestments• Implementation – transfer to

workstream leads• Ongoing communications and

engagement (internal and external)• Comparison to initial value creation

goals

GO/NO GO POINTS IMPACT ON VALUE AND POST-CLOSE SUPPORT

SUCCESS MILESTONE MEASUREMENT POINTS

How value is created will depend on a number of factors, such as:

The key rationale and objectives of the deal;

The position of products/services in their respective lifecycles;

The underlying financials of the target;

The alignment/fit of the strategies of the acquirer and target, and how these are likely to merge and/or change post-close. If there is a big difference in pre-deal strategic thinking, value creation might be slow or difficult to achieve;

Market reaction to the deal;

A myriad of exogenous variables outside the control of the companies party to the deal.

As above, M&A decisions are not just strategy decisions – they are also purchasing (investment) decisions. Table 4, below, sets out some of the Go- and No-Go decisions encountered across M&A.

Table 3: Value Creation PhasesSource: M&A Coach - Value from Integration and BTD


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PURCHASING/ INVESTMENT DECISION

GO NO GO

Strategy M&A is the right strategic approach for the given situation

After analysis, organic growth or another inorganic option (e.g. JV, partnership) will generate more value. M&A is not the way to proceed

M&A Readiness Assessment Acquirer has what it takes for M&A and integration to be successful

Evaluation shows the acquirer lacks resources and leadership capacity to make M&A and/or integration successful

Target Selection The target identified will fill enough strategic or capability gaps

Strategic gaps are not met, or people/cultural fit is not likely to work

Value Increase Potential Strategic growth goals can be met through the acquisition

Strategic goals cannot be met

Due Diligence Evaluation suggests that the target is “as presented” and that M&A goals can be realized post-close

Potentially high risks/red flags/deal breakers exist

Integration Cost and Risk Assessment

Integration costs and risks are estimated to remain within acceptable limits

Integration costs and risks are estimated to be too high – potentially significantly offsetting any value creation or posing to large a risk to ongoing business operations

Initial Estimates of Synergy Value Drivers

Initial synergy estimates indicate that value creation goals can be met within an acceptable timeframe

Estimates suggest there doesn’t seem to be enough synergy potential within an acceptable timeframe (or the costs to achieve synergies will be prohibitive)

Deal Negotiations Purchase price and terms are acceptable; all “non-negotiable” conditions have been met

Purchase price/and or terms are not acceptable

Purchase Price Purchase price is within acceptable limits The purchase price is beyond acceptable limits

Regulatory Approval Outside regulatory bodies (financial and/or competition) have approved the acquisition, and any remedies specified are acceptable to the business

Regulators have not approved the acquisition or imposed unacceptable remedies

Final Approval/governance The board/M&A steering committee approves the deal and is supportive of the value creation and integration plan

The board/M&A steering committee does not support the deal and/or does not have confidence in the value creation/integration plan

Value Creation PotentialFor a deal to achieve a satisfactory return for the business and its shareholders, the value created must exceed all costs involved in the acquisition and subsequent integration – all as calculated on a time-discounted and risk-adjusted basis. A common scenario is to underestimate costs and to overestimate value potential – therefore resulting in a deal that doesn’t “pay back” over time and is not accretive. This is sometimes referred to as the “synergy trap”.

This brings us to the concept of an Acquisition Premium – i.e. an amount over and above the stand-alone value of the target. Believing that their business is ultimately worth more to the acquirer, sellers usually expect a premium to be paid. Acquirers need to be careful and evaluate for themselves what premium – if any – is worth paying. Remember, the higher the premium, the greater the burden placed on integration to deliver synergies to pay it back. While a deal premium can be considered as the value to the acquirer of brand, IP,

Table 4: M&A Go, No Go Decisions

Source: M&A Coach - Value from Integration and BTD


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etc., ultimately, it’s nothing more than a reflection of the synergies targetted for capture.

Figure 5, above, shows that “deal premium” conceptually equals value creation. That is to say, if an acquirer takes the stand-alone target value, adds in the various types of synergies (i.e., revenue, cost, capital), subtracts the cost of delivering the synergies (i.e. costs to achieve incurred across the integration process) and any negative synergies, they end up (on a non-risk, non-discounted basis) with the maximum price they should pay for the target (i.e. below the red dotted line). If an acquirer pays below this price, they stand a chance of creating value from the deal. If they choose to pay anything above this (i.e. above the red dotted line) they’re going to have to squeeze more synergies out of the deal or risk the chance of a deal that fails to deliver on value.

Nevertheless, overpaying for an acquisition remains commonplace. Simply put, a company will pay too high a premium if it:

Overestimates the synergy potential;

Underestimates the work and costs involved in integration and across value creation activities.

If the synergies an acquirer determines as possible from an acquisition (including negative ones, costs etc.) are lower than the “premium” demanded by the seller, they should probably walk away since the deal will never measurably demonstrate an acceptable return.

Figure 5: Deal Premium


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Costs to Achieve

Value creation is not cheap and it’s a given that significant costs will accumulate as a result of value creation activities. It’s therefore critical to consider and accurately estimate costs to achieve to realize upside synergy targets and so to arrive at a net synergy number/target. Common examples of costs to achieve include:

Head count increase/reduction, changes to personnel – recruitment, redundancy costs and trade union disputes;

Project costs;

Rebranding (signage, packaging etc.);

Legal fees;

Purchase of new equipment;

Recreation of marketing and promotional materials (including e.g. websites, internal forms, etc.);

Training;

Travel costs for management and the integration team;

Use of third parties to support integration (e.g. consultants, systems integration experts).

Negative Synergies

Unintended negative synergies may materialize when a company focuses too heavily on integration activities to the detriment of day-to-day operations. Consequently, customer focus might be lost – with orders and sales adversely impacted, for instance. Customers might also take a dislike to a supplier that becomes too dominant as a result of M&A and defect to a competitor, or simply due to their own policy to retain multiple suppliers.

When such a “dip” in sales occurs, its length and magnitude will likely be attributed to a number of factors, such as:

Motivation, focus and retention of staff within the combined organization;

Extent of change in operational structure and people;

Quality of product/service, customer service etc.;

Reputation of the acquiring company;

The challenges integration is presenting to the business (e.g. as a result of core IT systems changes, new process introductions);

Unanticipated departure of key staff (e.g. sales individuals);

Retention of tacit/institutional knowledge in the company.

Loss of customer focus due to integration can lead to a rapid and severe revenue dip in a service and consumer business. This is particularly the case where winning new business is based largely on individual relationships, the order cycle is short, or service takes place immediately. If the right “business disruption” metrics are being closely monitored, with quick actions to remedy any issues set in place, the situation may be recoverable. Conversely, in cases where order sales cycles are long, it’s easy for management to develop a false sense of security and feel everything is going well given a long order backlog. However, the lag in the system can eventually play itself out leading to a sales dip further down the line that is both unexpected and unrecoverable.


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Table 5 below offers some examples of actions/decisions that can have a direct impact on synergies and therefore value:

VALUE INCREASE VALUE DECREASE

Common View and Commitment to Delivery

Combined operation top management to share:• Reasons for M&A• Market environment

understanding• A common view of the future

Operating Model for the combined business

• A common approach to integration• Clear, single point of accountability

for delivery of integration objectives and acquisition synergies

• If developing a joint view is delayed or just not happening

• Influential managers can dilute value by sending conflicting messages

• Lack of direction or focus

Management Systems & Organizational Structure

• Availability of management guidelines, governance program and do’s and don’ts

• Availability and well-communicated new roles, responsibilities and authority for everyone as early as possible

• Operational structure is NOT available or communicated

Cultural Alignment • Values and management culture are similar in areas where integration is taking place

• People have a good sense of commitment to the business

• A culture of personal responsibility is observable

• Ways of working are very different• Lack of personal responsibility

Continuous Communication & Leadership Engagement

• Early preparation, quick response and repetition

• Transparency and open communication

• Lack of communication or poor communication

Table 5: Sources of Value Increase/Decrease

Source: M&A Coach - Value from Integration and BTD


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Critical Success Factors in Value CreationCritical success factors to be considered when it comes to value creation and maximizing the chance of a successful (accretive) deal include the following:

Start EarlyBegin developing a synergy map and financial model early in the deal process, and refine it during due diligence, using due diligence to test assumptions and uncertainties – i.e. can they be realistically delivered?

Design a post-close Operating Model and therefore, the integration/improvement strategy, alongside due diligence. Ensure a clear and well-understood connection between the synergies sought and the operating model changes intended to reduce unnecessary change and business disruption;

Build integration plans directly from a synergy map and operating model to minimize the scale and scope of integration. Consider all other models alongside integration: do not integrate for the sake of it, but specifically ask what needs to be done with the two organizations to achieve goals.

Maintain the Right Balance of Focus between Integration and Business as Usual

Overall, it’s imperative to make efforts to maintain business as usual alongside a speedy integration/improvement program post-close. Separating integration efforts from everyday business operations, with integration managed by an integration management office (IMO), is a good starting point, provided business leaders remain fully accountable for the delivery of integration and deal synergies (see People);

Shortening the post-announcement, pre-close period and announcing the new management team as early as possible can reduce disruption, uncertainty and speculation;

Focusing on the retention of customers and key talent by fostering shared aspirations, clear communication and appropriate incentives should be a top priority. However, it’s all too easy for efforts to be focused on the deal to the detriment of the ordinary course of business (see Focus on Talent Retention).


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Build and Maintain Clear Accountability

Ensure leaders responsible for delivering deal benefits post-close are directly involved in synergy mapping, due diligence, operating model design and integration planning. These individuals need to be responsible for designing and shaping the future if they are going to be able to deliver value and be held accountable;

Set up a dedicated integration team to manage the process of integration and improvement post-close. Within this team, set up dedicated sub-groups focused on delivering both revenue and cost synergies;

Consider a clean team to support highly sensitive deals. A clean team can work to uncover and design plans to deliver synergies earlier and so gain more confidence on deal hypotheses via improved data access (see Consider Using a Clean Team);

Establish performance incentives for leaders to drive achievement of synergy plans, value capture and integration/improvement program milestones.

Focus on Talent RetentionThe following best practice principles can be followed to reduce the likelihood of retention issues becoming apparent during the integration phase of an M&A project:

• Understand how integration is going to impact each stakeholder group (customers, employees by function or location, others), and formally plan and execute a communications program that will both inform, listen and engage each over the full duration of the integration;

• Provide sufficient access to information – for instance, management should communicate

why the deal is advantageous and ensure that the message resonates with employees;

• Identify the key individuals you wish to retain (either permanently or for the duration of the integration only) and develop individualized retention incentives to promote performance. Avoid traditional time-based financial retention bonuses since these tend to incentivize retention, not performance and may miss what is really attracting the top people;

• Monitor workloads – during the integration process employees are often required to take on additional workload. It’s imperative to ensure that employees feel they can cope and know where the support channels lie in times of need;

• Provide opportunities for on-going learning and professional development – the cost of human capital attrition can far outweigh the costs of training and development. Furthermore, such initiatives give the message that employees are valued;

• Meet regularly with employees via one-on-one meetings or departmental catch ups. Discuss with employees how they are coping in their new role and with the increased workload;

• Provide tangible performance management objectives and incentivize key talent;

• Encourage employee focus groups;

• Provide sufficient managerial support – managers can be role models and play a critical part in the retention of employees during the integration process;

• Develop employee engagement surveys/”you matter” surveys to monitor employee sentiment of the deal.


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Work QuicklyMaking progress quickly and capturing value as early as possible is important as part of the message sent to stakeholders and in justifying the underlying deal rationale. Furthermore, working quickly and capturing value early can buy time later in the integration process should certain areas of value capture prove more difficult.

Align on Decisions Align around cross-selling and channel;

Enforce efficient decision making on goals, mindful of operating model implications;

Balance near-term and long-term synergy initiatives.

Widen the Synergy NetA balanced portfolio of synergy initiatives is vital to spread risk and maximize the chances of success;

Lead change management activities across both organizations;

Enlist customers, partners, and other key stakeholders in guiding and informing key decisions;

Budget for costs to achieve;

Use the deal as an opportunity/springboard to “do more” and pursue other key strategic goals in parallel with the integration effort.

Focus on Data & the DetailEnsure you are working from the most reliable data possible. Reliable data is required to make accurate estimates – however, this is typically difficult to obtain in the stages of evaluating a target and even once deep into due diligence. Assumptions are therefore initially required earlier on in the deal process – which become more accurate as more detailed information is obtained;

Conduct detailed pre-deal due diligence with a focus on value creation;

Revise targets as more information is obtained and the accuracy increases.

Don’t OverestimateMultiple studies show that synergies are all-too-often overestimated. This can be due to:

Overall plans not being anchored in reality;

Customer reactions are underestimated;

Market growth is overestimated;

Competitor reactions are underestimated;

The pricing power of the combined organization (acquirer + target) is over-estimated;

Market share is overestimated;

More resources are required to capture synergies/value than initially planned;

Estimates are based on limited information – such as due diligence and early site-visits;

Detailed sales information, pricing data, sales competence, customers and products and other key information is only made available after change in ownership. Without access to this information it’s difficult to estimate the true value potential of a deal;

Build in contingency – if the situation requires it, teams might have to go back to the drawing board in search of new value drivers to bridge gaps where value has not been captured.


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Balance Accuracy with Speed…but Lean Towards Speed

There will always be a trade-off between accuracy and speed on a project. This trade-off should be a conscious decision based on the particulars of each individual deal;

To address the accuracy versus speed polemic, determine the appropriate implementation timeline by establishing when to work with speed and when to take more time. A starting point for this can be at the Initiative level (see Planning for Value Creation) and working down to the Synergy level and then to the individual Task level;

Change is hard and disruptive, so generally – provided it’s done well – successful integrations are those which take place quickly. New processes and solutions that are “good enough” and implemented now are more helpful at delivering synergies and getting back to business as usual than “perfect solutions” implemented in 24 months.

Consider Using a Clean TeamA clean team can act as an impartial and objective resource to support the decision makers at both companies involved in the early stages of deal discussions when seeking to learn more about each other. A clean team works independently of the acquirer and seller to analyze data/information, consolidate it and prepare reports to aid the deal decision-making process. A major benefit of using a clean team is to gain greater clarity of a potential deal and the value it could create before the parties make formal commitments or disclose sensitive information to one another;

A clean team can access confidential information from both parties of a deal and can therefore provide an early assessment of a potential deal’s rationale, what synergies/value creation potential might be on offer, what a combined business plan might look like and what negotiation points might arise later on;

A clean team prevents the risk of sharing too much information, too soon in the deal discussions, and either party rushing into formal negotiations (often a prerequisite to the sharing of confidential information);

To ensure either party can walk away from a potential deal, with no harm to the either party involved, a clean team must operate under strict, mutually agreed-upon rules;

The sensitive information/data analyzed by a clean team might include customer lists (by name, spend, etc.), suppliers and production costs, etc. that either company can’t or doesn’t want to share, perhaps due to regulatory or competitive considerations.


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A Roadmap for Value Creation1.Estimating SynergiesEstimating synergies requires assumptions about the future P&L, cash flows and growth rates. Accordingly, synergies should be estimated by addressing four fundamental questions:

1. What form will the synergy take, and what line item on the P&L (of either business) will it impact?

2. How significant will it be?

3. When will it start to affect the P&L, and will it likely “ramp up’’ to the full value over time? (Remember, the longer the synergy takes to be captured, the less [more highly discounted] value it should be given);

4. Responses to the first three questions will change under different scenarios (e.g. most commonly “best case”, “likely case” and “worst case” – but others may be worth considering).

Adopting this approach, both the acquiring and target company P&Ls should first be forecast separately, and their expected discounted cash flows given the weighted average cost of capital (WACC) for each

company (commonly referred to as a discounted cash flow/DCF). From this, two independent enterprise values for the separate organizations can be obtained. Next, a P&L and discounted cashflow of the combined new organization (as a single entity, but with no synergies) should be estimated by simply aggregating the P&Ls and discounted cash flows obtained for each company on a separate basis (per step one).

Finally, the “line-item” effects of synergies, assumptions around expected growth rates, foreign exchange rate movements, etc. can be layered into the P&L of the combined new organization (per step two) – out of which a combined, integrated discounted cashflow and enterprise value can be confirmed. The difference between the value of the combined new organization with/without synergies provides an estimate of the synergies associated with the deal in question, while the enterprise value differences alongside any internal hurdle rate for investment within the acquirer’s business leads to an understanding of any premium (and therefore the maximum price) that should be offered.

1 ‘CONSOLIDATED’ P&L

3 ‘LINE ITEM’ INTEGRATION ADJUSTMENTS

5 RISK/TIME ADJUSTED P&L & BENEFITS PROJECTION

2 ACQUISITION & INTEGRATION ASSUMPTIONS (BEST/MIDDLE/WORST CASE)

4 POST-CLOSE PERFORMANCE ADJUSTMENT

Figure 6: Estimating Synergies – Methodology


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The higher the premium an acquirer pays for a target, the more they are “paying for” future synergies up-front, and therefore the lower the potential return on this investment. An acquirer might feel compelled to offer a premium to secure the acquisition (especially in a competitive situation), and there is nothing wrong with “paying for synergies” if necessary, provided an acceptable, risk-adjusted return is achieved. Do also keep in mind, however, that synergies – positive and negative (dis-synergies) – can be present in both organizations, hence the need to incorporate both entities into the synergy and valuation models.

When it comes to estimating synergies, hidden costs such as adverse reactions to the deal and

miscellaneous spending should also be factored in (which are dilutive to value and serve to effectively increase acquisition costs). Indeed, acquirers often focus purely on the upside of a deal during pricing analysis without considering such costs or fail to consider the discounted nature of any upside over time. Furthermore, follow-on investments may be required before synergies can be fully realized. Implementation costs associated with a post-merger exercise must also be considered. Failure to consider these “hidden costs” can easily result in the acquirer assigning an inflated value to a target and in doing so makes the deal a failure before it is even signed – the famous “synergy trap” mentioned earlier.

SYNERGY MAPPING

Figure 7: Deal, No Deal

SYNERGY MODEL (3 CASES)

P&L + BALANCE SHEET (3 CASES)

MULTIPLE-BASED VALUATION

Stand-alone or combined?

Basis: historical, projected or both?

Industry basis

Valuation period

Free Cash Flow (FCF)

DCF (TERMINAL VALUE) VALUATION

ACCEPTABLE RETURN (WACC, DISCOUNT RATE)

DEAL NO DEAL


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Ten Tips for Estimating Synergies

1. Estimate the value saved via sharing resources that are not 100% utilized (i.e. machinery, vehicles, computers, etc.);

2. Estimate operating efficiency improvements through sharing “best practices” and improving processes;

3. Estimate opportunities to increase revenue by cross-selling products/services or increase prices by leveraging greater market status or eliminating a competitor;

4. Estimate costs savings associated with improving distribution strategy by serving customers in close geographical proximity;

5. Identify ways to consolidate suppliers and negotiate better terms with them using economies of scale and purchasing goods/services at lower prices;

6. Analyze head office function savings by combining offices (saving rent, etc.) and business functions (such as finance and HR);

7. Analyze headcount and identify any staff surplus to requirement (for instance, it is unlikely two finance directors will be required);

8. Identify where professional/consulting services fees can be reduced;

9. Identify approaches to human capital improvements – for instance, leveraging the increased size of the combined organization to attract superior talent;

10. Estimate how hiring in other countries (if a target has overseas operations) can reduce labor costs.

Figure 8: 3 Steps to Estimating Synergies

BENEFIT

Each forecast synergy benefit should be carefully reviewed. It’s important

not to be overly-optimistic when forecasting incremental revenue

increases, cash flows and costs, etc. PROBABILITY

The probability of capturing each synergy should be carefully

evaluated. One approach to this is to consider optimistic, pessimistic and realistic scenarios (the Monte-Carlo simulation method could help with finding a possible range of results).

TIME

The time taken to capture each synergy should be approached with

realism. History shows synergies can take 12-24+ months to be realized. Underestimating timeframes could make a deal seem more attractive

than it is.


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Midaxo Synergy PlannerTo make synergy estimation easier in practice, Midaxo’s Synergy Planner can be used in the early stages of the deal lifecycle to establish a synergy hypothesis.

Using the Midaxo Synergy Planner, different value creation scenarios can be modelled and visualized with a dynamic value creation bridge and via Excel and PowerPoint documents – which are exportable from the Synergy Planner with one click.

Figure 9: Midaxo Synergy Planner

(Beta release)

Figure 10: Example of a Value Creation Bridge generated with the Midaxo Synergy Planner (Beta release)

Figure 11: Example of Assumptions behind Revenue and Cross-Selling Estimate in the Midaxo Synergy Planner (Beta release)

Try the Midaxo Synergy Planner Read More Here


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https://midaxo-synergyplanner.s3.us-east-2.amazonaws.com/index.html

https://blog.midaxo.com/project/incorporating-synergy-planning-into-the-ma-due-diligence-phase

2.Planning for Value CreationThe starting point to capturing synergies is to prioritize value drivers (the factors underpinning synergies lower down the synergy map) in preparation for execution and synergy capture. A key point to note here is that not all synergies identified and estimated in the preliminary analysis stage will be captured – an acquirer will simply have too many areas to focus on post-close and finite resources to work with (making the wrong assumption that all synergies will be captured is one of the reasons for over-valuing an acquisition target). Rather than attempt to capture them all, the “easy wins” should be targeted – i.e. the synergies that will yield the highest return/increase shareholder value most quickly for the least amount of cost, effort or risk.

Easy wins are most likely to (i) be significant and directly aligned with the strategic rationale underpinning an acquisition (ii) present the highest probability of success (subject to resource and time constraints) and (iii) be capable of being accurately measured and tracked.

To ensure you can accurately estimate “easy wins”, do not attempt to skip ahead. First, design the key aspects of the post-close operating model (and therefore defining the changes to both organizations that will be necessary to deliver the synergies). Next, identify those projects or initiatives that will be required to deliver both the new operating model and the synergies themselves. Some initiatives will directly deliver synergies without a great impact on the operating model (e.g. “Conduct Pricing Review and Implement New Pricing Structure”), while other will deliver or support a synergy (or number of) through a significant project of work (e.g. “Close acquired HQ, Integrate HR and IT staff into Existing Shared Services”). A high-level definition or “charter” of each initiative will then allow for key questions to be asked, including: How long will it take? How many groups will be involved? What’s the likely cost to deliver the project? What other dependencies and constraints exist that will impact this project?

Only when a reasonable high-level definition of the initiatives required to deliver synergies exists can they be mapped and prioritized accurately.

Figure 12: Initiative Mapping & Prioritization: Financial Impact versus Probability of Success


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An acquirer should focus its efforts on initiatives that fall in Box 1 (Figure 12) – these have the greatest chance of delivering a high financial impact given the finite resources available (people/time/budgets, etc.).

Preliminary analysis, design and planning for integration and synergy capture is best started in the early stages of the deal lifecycle – this is usually based on limited information (such as financial statements and any company/annual reports available in the public domain) and pinned to “best estimate” basic assumptions. While potential synergies might first become apparent in the process of researching a target pre-due diligence, it’s important to note that synergies identified in the early stages should be regarded as high-level guidelines only.

As more information on a target is collated (via a light and then more detailed due diligence exercise) early synergy assumptions can be refined and preliminary analysis made more robust. Operating model design and integration planning can then commence in parallel with due diligence and valuation – each activity helping to shape and inform the other. While at the early stage of the deal-lifecycle

the financial model in which synergy estimates are mapped will be relatively high-level and not certain enough to base key purchasing decisions on, the work on synergies, operating model and integration/improvement initiatives will inform, validate and allow a greater degree of granularity and confidence as progress is made.

This approach will lead to the following overall structure for synergy capture: a post-close Integration/Improvement Program comprising a number of Initiatives, each of which typically delivers a combination of Synergies and/or Operating Model Changes (including, e.g. integration in specific areas, process and/or system changes in others, etc.).

Initiatives can be thought of as a series of projects that will help in realizing cost and revenue synergies and delivering changes to the organization. Initiatives sit within an overall integration program and therefore roll up to deliver the ultimate objectives of the acquisition. Any one initiative could deliver one or more synergies – e.g. cost saving, or revenue increases defined in the original deal case; however, in some cases several initiatives may be required to achieve a single synergy.

Figure 13: Integration/Improvement Program

INITIATIVES (OR WORKSTREAMS)

Delivering changes to the operation model which in turn deliver deal

synergies

POST-CLOSE INTEGRATION &

IMPROVEMENT PROGRAM

Delivering the overall rationale and objectives for the acquisition


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This approach leads to a much closer and more helpful connection between deal synergies, operating model and integration than is sometimes seen with less-

experienced acquirers – one that leads to significantly higher long-term success post-close.

ASSESS, DESIGN & PLAN EXECUTE, MONITOR, REPORT, COURSE CORRECT

When Pre-Due Diligence Due Diligence and Negotiations

Early Post-Close Longer-term Post-Close

What • Work to identify potential synergy sources as part of pre-deal phases (i.e. initial analysis, light diligence and detailed due diligence).

• Model and deconstruct potential synergies sources based on data available and compile a first draft operating model and synergy plan.

• Commence high-level planning of post-close initiatives.

• Prepare functional workstreams for integration.

• Conduct more detailed synergy analysis and revise synergy plan.

• Develop Operating Model.• Identify Post-Close

Integration & Improvement initiatives; prioritize and roadmap.

• Build detailed project plans with clear connection to operating model changes and synergies.

• Assign clear ownership and accountability for tasks and synergy delivery.

• Confirm initiative dependencies, risks and timings and incorporate into deal valuation.

• Cost initiatives and incorporate into deal valuation.

• Develop Day One and Change of Control Plans.

• Develop Communications & Engagement Plan to support Day One, Change of Control and Integration.

• Conduct Day One and Change of Control.

• Commence execution Integration Program.

• Track and report on the execution of initiatives (see Executing for Value Creation).

• Begin measurement of synergy results.

• Revise targets and course correct project plans where needed.

• Maintain a cadence of on-going reporting and monitoring (e.g. on a monthly or quarterly basis).

• Re-evaluate initiatives still being executed on in line with changes in the market and having a better understanding of the acquired business (as necessary).

Table 6: Value Creation Timeline

1. Consider Initiatives and their inputs

An initiative might be, for example, to “Close the warehouse in Boston”.

Model assumptions/calculations – inputs might include:

Baseline

Averages

Margins

Customer numbers

Costs of sales

Average price per square foot of office/warehouse space

Salaries

Redundancy costs

Cost of utilities

Other operating costs – e.g. insurance and business rates


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NOTE: as part of estimating synergies, it is imperative that benefits are not double counted – e.g. synergies must not be claimed by various departments or other initiatives/functional workstreams. It’s also critical to establish a baseline against which each synergy target is to be measured.

Once an acquirer has prioritized the synergies it seeks to target, a business case should be developed for each initiative – this should map out the purpose of focusing on a particular initiative, the risks and costs of delivering it, the operating model changes required to achieve or support the synergy, and the scale and timing of the expected benefits (both quantitative and qualitative).

A business case should start with the synergy estimates identified as a part of the preliminary analysis stage. From here, synergies should be looked at in terms of their component parts – this stage builds upon earlier analysis but should go beyond financial considerations in the sense that operational factors should also be considered (i.e. how will the synergy actually be captured?). To measure the success of the business case, quantitative areas can be used as the metrics for performance tracking – qualitative areas can be used to gauge how the plan is actually being executed.

Quantitative areas of a business case should include:

Financial analysis and impact;

Measurement metrics;

Expected time frame to capture.

Qualitative areas of a business case should include:

Detailed description of the qualitative value driver(s) comprising the synergy;

Key action steps required to capturing;

Operating assumptions;

Potential risks.

Once a business case for the initiative has been prepared, its more specific project plan can be developed with clear links/references to each operating model change and synergy targeted. Once accomplished across all initiatives, this becomes the Integration & Improvement Program plan, which teams will use post-close.

2. Consider Synergy ContributionsContinuing with the example of the initiative to “Close down the warehouse in Boston”, some potential synergy sources could include:

SYNERGY SOURCE SYNERGY TYPE NATURE IMPACT

Reduction in employee salaries Cost Recurring P&L

Reduction in rent payments (assuming warehouse is leased) Cost Recurring P&L

Reduction in utility payments Cost Recurring P&L

Reduction in other operating costs Cost Recurring P&L

Reduction in logistics costs (if transferring operations to a closer one)

Cost Recurring P&L

Reduction in stock levels (if not simply transferring all stock to other warehouses)

Cost One-time Balance Sheet

Cancellation of previously planned warehouse refurbishment program

Cost One-time (CapEx)

P&L and Balance Sheet

Sale of fixed assets, fixtures and fittings no longer required Revenue One-time P&L and Balance Sheet

Table 7: Synergy Sources - Examples

Note: representative examples, not an exhaustive list.


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3. Costs to Achieve

Value creation is not cheap and significant costs are likely to accumulate as a result of value creation activities – these can include:

Head count increase/reduction – redundancy costs and trade union disputes;

Project management costs;

Legal fees;

Purchase of new equipment;

Marketing – such as change of logos, packaging, branding, website, promotional materials;

Training;

Travel costs for management and the integration team;

Meetings;

Internal opportunity costs (i.e. the cost of the opportunities forgone as a result of team members working on the integration effort and being sidelined from other high value/impact internal projects).

Again, keeping with the initiative to “Close down the warehouse in Boston”, the following costs might be incurred in order to achieve the above synergies (Table 7).

COST RELATES TO NATURE IMPACT

Redundancy payments People One-time P&L

Legal fees Advice sought in the redundancy process

One-time P&L

Penalty clause for early termination of lease Rent One-time P&L

Penalty clause for early termination of utility contracts

Utilities One-time P&L

Selling costs in relation to assets no longer required

Fixed assets One-time P&L

Increase of staffing required for increased activity at alternate warehouse

People Ongoing + One-time (recruitment and onboarding)

P&L

Additional utility and/or other operating costs in the alternate warehouse

Utilities & Operating Costs

Ongoing P&L

Upgrade of software system to accommodate new customers and products being moved to alternate warehouse

Software One-time P&L

Training of new/existing staff to accommodate new customers and products

People One-time P&L

Additional parking spaces required to support increased staffing at alternate warehouse

Fixed Assets One-time Balance Sheet

Table 8: Costs to Achieve – Examples

Note: representative examples, not an exhaustive list.


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4. Net Synergies

Net synergies are simply the sum of estimated synergies (cash inflows for revenue synergies or cost savings for cost synergies) less the estimated cost to achieve the synergy. It’s important to look at the net figure (not the gross) since in some instances the cost to achieve could easily exceed the forecast upside synergy value – thus making targeting such a synergy questionable.

A Word on the Timing of Value Creation

As part of planning, it’s also vitally important to consider when synergies will be realized and when costs to achieve will be incurred. They will not always fall in unison, so being cognizant of this helps when it

comes to matters such as cash flow forecasting and preparation of year end accounts, etc. Furthermore, given that synergies and their associated costs are likely to be realized many months post-close, and in some cases far into the future, it’s usually appropriate to build both the size and timing of these costs and benefits directly into the DFC model for P&L forecasting and the DCF-based deal valuation model. It’s also advisable to consider the sensitivities and a number of best/likely/worst cases for all synergy sources (again, both in terms of scale and timing). Acquisition business cases can – and often do – ‘“fail” simply because synergies are realized in full, but six or twelve months later than anticipated.

Six Important Practices when Planning & Realizing Synergies

1 Start early and plan for revenue synergies. Don’t be afraid to bring in clean teams to legally examine pricing topics and be open to a joint planning approach (independently undertaken within each company) until the results can be easily combined when the deal is closed.

2 Lead with commercial strategy instead of the integration strategy. Develop a vision for positioning combined products within the market, and carefully think about how to enhance or rationalize products and features so that they are in line with market needs. Start by prioritizing the customers and markets you want to address and plan the integration and supporting infrastructure around achieving those goals.

3 Move quickly and early. Customers and suppliers are much more willing to accept change (and in most cases expect it) as a consequence of M&A. However, the window of opportunity for change is limited, so use this short timeframe wisely. Cross-selling products, harmonizing trade terms, rationalizing product segments, renegotiating with suppliers, etc. can boost M&A performance and business operations while demonstrating success and momentum early on.

4 Create a dedicated commercial team with a strong analytical skillset and deep commercial experience. The ability to manipulate large data sets and derive insights from statistical analysis can quickly highlight opportunities that will immediately deliver value and strong results – without having to wait until the integration is fully completed.

5 Assign clear and visible accountability for each synergy, and a solid understanding of the link between every organizational change post-close (integration, alignment, improvement or other) and the specific synergy it delivers or supports. This accountability must rest inside the business – while outside support can be instrumental in helping facilitate and manage the process of integration, direct responsibility for delivering deal benefits must remain with line management.

6 Ensure senior and executive level leadership support for the integration is strong and visible throughout the post-close period. Integration is a transformation not a process, even if only for the acquired entity (but often for both sides). It will only succeed if leaders demonstrate and insist on commitment to the journey. As soon as the business perceives that its leaders are no longer attentive or care about deal success, momentum will falter, and longer-term benefits will not be realized.


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Executing for Value CreationOnce initiatives have been defined, the synergies that will sit under these initiatives are understood and Day One/Change of Control has taken place, a business will need to deliver everything discussed in the planning phase.

As previously discussed, an Integration and Improvement Program Plan should adequately outline all the initiatives and their associated tasks that must be undertaken to capture a specific synergy and deliver the operating model changes needed to do so. This plan should be detailed and nominate accountabilities for each initiative, the individual(s) assigned to each of the tasks included within them, how other resources will be allocated to the tasks, the due date for completion, key dependencies and any other critical matters relevant to the task. At its simplest, initiatives

could be managed with an Action Plan spreadsheet (e.g. using Excel) which is updated manually on a regular basis.

Alternatively, Midaxo’s Digital M&A Platform allows integration workstreams to create, view and store initiative plans in one place via a Playbook/Workplan, track task progress in real-time and work much more efficiently with one click reporting across automated reports and dashboards.

Read More About Midaxo Playbooks

Figure 14: Example Section of Midaxo’s Comprehensive Post-Merger Integration Playbook


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https://resources.midaxo.com/collections/playbooks

In the context of value creation, initiative plans for execution should contain the following (for each initiative):

Initiative name (and ID number for tracking purposes);

Initiative sponsor (single point of accountability);

Initiative manager/team lead;

Overview of the initiative:

Specific hard benefits/synergies it will deliver

Intangible/soft benefits/synergies it will deliver

Specific operating model changes it will deliver

Costs to achieve and timing of those costs incurre – including any relevant cost center (for P&L and reporting purposes);

Risks to achieving the initiative successfully + risks the initiative may pose on the day-to-day business + how these will be managed;

Constraints (within the business or related to other projects and initiatives) that impact on the initiative;

Dependencies (typically linking to other tasks and across initiatives, but which may also relate to other projects and programs taking place and/or aspects of day-to-day business operations);

Assumptions on which the initiative rests and how these will be managed;

Detailed tasks to be conducted + responsibilities + timings.

Figure 15: Executing for Value Creation – Steps to Success

DEVELOP A SYNERGY MAP

UNDERSTAND THE FUTURE OPERATING

MODEL

CREATE A SYNERGY

VALUATION MODEL

COMPILE ACTION PLANS

BEGIN WITH A TOP-DOWN APPROACH

PLAN FOR POST-CLOSE


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A Word on Dependencies

As per Figure 13: Integration/Improvement Program, initiatives will be associated with a number of synergies, the achievement of which will be contingent upon a number of tasks being performed. There will therefore likely be a vast number of dependencies across any integration/value creation effort. Some of these will be “hard” dependencies (i.e. tasks that simply cannot be achieved before another is completed, typically known as a “finish to start” dependency, although “start to start” and “finish to finish” dependencies can also exist). Others will be “soft” dependencies related to shared use of specific resources (e.g. “John can’t do both of these tasks at the same time so let’s have him do this one first.”); general workload considerations (“we simply don’t

have enough people to do all of this at the same time or don’t want to overload the business with too much change at once”); or other general considerations (“it will be much easier to complete this task once these others pieces are in place”).

To ensure that all components of a project can be tied together and worked synchronously it’s important to understand where both hard and soft dependencies lie and which tasks should be defined as predecessors (i.e. the task that comes first and which controls the start or end date for all related successor tasks) or successors (i.e. tasks whose start of end date are determined by a predecessor task).

Managing Risks and Issues during Execution The difficulties associated with capturing synergies in the execution phase of a project are regularly underestimated. While some synergies can be realized within a few months post-close (e.g. pricing, initial headcount and some procurement), the most significant synergies are often realized 12-24+ months after a deal closes. Think of this as the “phase in” period, where operational efficiencies, cost savings, and new revenue streams are gradually introduced into the new combined organization. In the short term, costs may actually increase via one-off integration expenses and short-term inefficiencies due to employees not having worked together before and

culture clashes. Crucially, if a culture clash is too great, integration can stall and synergies may never be realized.

Across the integration process, acquirers must keep in mind a vision and operating model of the newly combined organization as distinct from the two or more constituent companies – building towards it on an on-going basis. This vision and operating model must also be communicated exhaustively to staff and stakeholders, ensuring they understand where operations are to be aligned and why the combination

Figure 16: Creating Dependencies in Midaxo


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will lead to better outcomes overall, both for the business and for them as individuals.

Steps must also be taken to protect the business operations of the companies merging. Despite the best intentions of all involved, cultures, core capabilities and ways of working are sometimes incompatible – meaning companies are simply better off apart, or with just a small degree of integration (hence the need for a comprehensive and objective process to design the operating model up-front). Protecting the key assets, processes and relationships of the two companies is therefore a crucial part of minimizing risk in the integration-phase.

Managing risks during integration can – and in most cases should – be conducted simply and collaboratively. Risks should be identified and profiled during integration planning to assess both likelihood

and potential impact; root causes and consequences for each understood (viewing every risk as a link in a chain of events); visible triggers for each risk identified (when and how specifically will you know this risk has occurred?) and owners assigned for each. Detailed management plans should then be developed for the most important of these to either avoid (reduce likelihood) and/or mitigate (reduce impact) established with accountability for each.

Once developed, a Risk Plan can be reviewed, reported and updated regularly as part of overall integration reporting. A Risk Plan highlights the overall status of a project (e.g. Red/Amber/Green) and indicates whether a risk has “moved” since last reported on. As with all approaches to risk management, the key is to keep it “real and alive”. Insisting on highly visible owners of individual risks is a good way to do this.

Early Warning Signs of an Underperforming Integration

Integration milestones drift or slip unexpectedly

Slow deterioration of core operating metrics

Proliferation of contradictory management data, delays in delivery of regular or ad-hoc reports

Increased time required for basic processes, e.g. funding approval, end-of-month account presentation, invoicing

Multiple unexpected staff or management sickness or departures

Upward drift in monthly operating costs

Increase in customer complaints and/or product returns

Reduced regular management attendance at integration review meetings


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Tracking for Value CreationAs project plans are executed, progress against delivery of the new operating model and synergy capture should be tracked. Doing so enables workstreams to monitor progress against goals, identify and resolve issues in a timely manner, make course corrections early and ensure that value is being captured as planned. The tracking of synergies is imperative for reporting later in the integration process – without tracking, deal value can be eroded and lessons cannot be learned.

Tracking the progress of value creation across an integration program ensures accountability of workstreams and individuals assigned to specific tasks and can help ensure that an acquirer is on track to achieving the intended deal outcome.

Adopting a centralized approach to monitoring, tracking and reporting on value creation is most likely to ensure an acquirer stays on task across an integration program. The metrics for value creation (or “synergy tracking”) should be pinned to the synergy estimates outlined in a specific business case (a business case will have set out specific quantifiable synergy goals so it should be possible to benchmark financial progress against this).

The IMO can take a leading role in supporting synergy-tracking initiatives, such as by working closely with initiative leaders (typically functional managers e.g. finance, legal, sales, marketing) to create their detailed initiative plans as defined above.

During execution, the IMO typically provides services to the program and individual workstreams such as:

Provision of general project and program standards, training and support;

Cross-initiative change and dependency management;

Cross-initiative risk and issue management;

Overall program (including benefits) tracking & reporting;

Program budget and resource management;

Specialist support needed across multiple initiatives (e.g. business analysis, process re-engineering, systems support, communications;

Overall co-ordination and alignment of communications and engagement plans across the integration program.

Note that the IMO is not best placed to take on direct responsibility for delivering acquisition and integration benefits and synergies since they will not have the authority to dictate or force through the operating model changes required to deliver them. Entrusting the IMO with this kind of authority invariably leads to conflict (e.g. who’s responsible for designing and implementing the new sales team structure crucial for delivering the revenue synergies, the Director of Sales or the IMO?). Nevertheless, the IMO does have direct responsibility for facilitating the process of integration and synergy realization, ensuring that progress and issues are visible, decisions are made by the business at the right time with the right information, that project and program quality is maintained, and resources are effectively allocated. Think ‘navigator and chief engineer’ of the ship, rather than the captain.


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Midaxo Synergy & KPI TrackingThis new module within the Midaxo platform provides the functionality to add initiatives and sub-initiatives to a project plan, track financial synergies and KPIs and report on progress with real-time analytics dashboards and one-click reports.

Figure 17: Midaxo Synergy & KPI Tracking

Note: screenshot of Beta version but representative of functionality

Contact Midaxo

We’ve worked closely with our customers and partners to ensure the Synergy & KPI Tracking module is powerful, easy to implement and flexible.

• Import initiatives from Excel or input them manually into the Synergy & KPI Tracking module;

• Add detailed notes to initiatives to ensure teams are fully aware of what’s required for success;

• Prioritize value creation initiatives, add descriptions for each initiative and define KPIs — including cost, revenue and capital synergies, headcount KPIs, costs to achieve, etc.

• Track synergies and KPIs over time and visualize progress against initial plans and re-forecasted metrics;

• Transition to real-time reporting with Midaxo’s Analytics and benefit from using a range of best practice reports developed with M&A advisors and consultants.

To learn more about Midaxo’s Synergy & KPI Tracking module, please contact us.


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https://info.midaxo.com/contact-us

Monitoring and Reporting for Value CreationActively measuring and reporting on performance during the integration process is crucial for success and maximizing the chance of value creation.

While every case needs to be tailored to reflect the culture and priorities of the organizations and the deal in question, integration tracking and reporting typically functions as follows:

M&A and Integration Review (Monthly/Quarterly; Executive Team/Steering Committee)

Summary of status of initiatives – e.g. complete, in progress, postponed, delayed, etc.;

Overall review of actual performance of the synergy plan vs. plan;

Achievement of other objectives vs. plan;

Current risks and status of management plan;

Integration costs vs. budget;

Key decisions, actions, next steps or support required of the executives/Steering Committee.

Initiative Review (Bi-weekly; Initiative Sponsors/Managers)

Initiative summaries, changes and issues impacting other initiatives;

Key milestones achieved and next steps;

Cross-initiative changes; areas where support is needed between initiatives.

Initiative Updates (Weekly; Individual Initiative Managers and Teams)

Initiative status, changes and issues;

Resourcing vs. plan.


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Real-Time Reporting with Midaxo Analytics

• Track/monitor the status of tasks across integration projects in real-time;

• View progress by project, workstream and responsible assignee;

• IMO Update and Executive Summary sections provide critical insight to key decision makers;

• Syncs to data contained in your task-list/playbook/work-plan;

• Generate a multi-page report with one-click or work from dynamic real-time dashboards – saving project teams hours/days of repetitive work.

Figure 18: Reporting on Value Creation During Integration with Midaxo Analytics

Learn More


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https://www.midaxo.com/platform/analytics

In addition to reporting on value creation from a financial standpoint, it’s important to identify and track people issues. For example, effective communication with employees across the integration process can be measured by employee surveys. The following example metrics/KPIs should be considered when it comes to measuring deal success beyond just the hard numbers:

Employee engagement/satisfaction (e.g. referenced to an eNPS survey – employee net promoter score);

Talent Acquisition/retention;

Employee Absenteeism (measure pre & post deal and investigate variances);

Operational effectiveness/continuity;

Employee productivity.

Additionally, it’s important to build in feedback loops to track progress and continually measure performance against expectations – while documenting and rewarding successes. Discussing improvements for the next deal and evaluating success is not just something for the end of the integration process. Rather, an ongoing effort is required to provide integration team members with real-time feedback during project execution. Such a continual feedback loop enables a team to modify or replace ways of working that are not gaining traction and/or delivering the intended results.

Figure 19: Value Creation Reporting Cadence & Key Deliverables

Workstream Leadership Update Calls

Workstream Sponsors/Coordinators update Workstream Action Plans, send to IMO

Workstream Alignment Call to discuss issues, delays and risks

Integration Dashboard Report issued (cross-programme)

Integration Steering Commitee Meeting - review program risks, escalate issues and discuss cross-workstream decisions

Weekly

Weekly

Bi-Weekly

Monthly

Monthly/Quaterly


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Take-AwaysConsider Levers for Value CreationWhen it comes to value creation via financial synergies there are three main levers a company can pull: cost, revenue and capital.

Cost synergies are associated with one-time or ongoing cost savings achieved via eliminating duplicate functions, rationalizing spend, reducing relative headcount and driving overall cost efficiencies through operations, etc.

Revenue synergies contribute to top-line revenue growth – for instance, via cross-selling of products/services, price increases, or new channels such as a customer demographic or geography, etc.

Capital synergies target one-off or ongoing improvements to the financial statements – namely the balance sheet and cash flow – such as through enhancements to the working capital cycle, realizing value from surplus/idle fixed assets, avoidance of planned investment and reductions in borrowing costs/cost of capital.

Create a Value Creation StrategyDeveloping a value creation strategy at the start of target assessment then detailing and refining it through the pre-deal exercise is a critical activity. This should be undertaken to drive both the deal process and integration design & planning.

Start EarlyBegin developing a synergy map and financial model early in the deal process and refine it during due diligence. Use due diligence to test assumptions and uncertainties – can they be realistically delivered?

Don’t Ignore Costs to AchieveValue creation is not cheap and significant costs will accumulate as a result of value creation

activities. It’s critical to consider and accurately estimate the costs to achieve upside synergy targets to arrive at a realistic net synergy number/target.

Don’t OverestimateFor a deal to achieve a satisfactory return for the business and its shareholders, the value created must exceed all costs involved in the acquisition and subsequent integration – all as calculated on a time-discounted and risk-adjusted basis. A common scenario is to underestimate costs and to overestimate value potential – therefore resulting in a deal that doesn’t “pay back” over time and is not accretive. This is sometimes referred to as the “synergy trap”.

Plan, Execute, Track, ReportPlan – the starting point to value creation is to prioritize value drivers (the factors underpinning synergies ‘lower down’ the synergy map) in preparation for execution and synergy capture.

Execute – once initiatives have been defined, the synergies that will sit under these initiatives are understood and Day One/Change of Control has taken place, the business will need to deliver everything discussed in the planning phase.

Track – tracking the progress of value creation/synergy capture across an integration program ensures accountability of workstreams and individuals assigned to specific tasks. It can also help ensure an acquirer is “on track” to achieving the intended deal outcome.

Report – actively measuring and reporting on performance during the integration process is crucial to driving performance and maximizing the chance of value creation. As part of reporting pay attention to the cadence of reporting and key deliverables.


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List of Figures and TablesFIGURES

Figure 1: M&A Volumes and Performance ......................................................................................................................................................... 3

Figure 2: Day One Priorities .................................................................................................................................................................................... 4

Figure 3: Synergy Mapping ...................................................................................................................................................................................14

Figure 4: Post-Close Operating Model – Typical Areas to Consider (BTD).................................................................................................14

Figure 5: Deal Premium .........................................................................................................................................................................................18

Figure 6: Estimating Synergies – Methodology ..............................................................................................................................................25

Figure 7: Deal, No Deal ..........................................................................................................................................................................................26

Figure 8: 3 Steps to Estimating Synergies .......................................................................................................................................................27

Figure 9: Midaxo Synergy Planner (Beta release) ............................................................................................................................................28

Figure 10: Example of a Value Creation Bridge generated with the Midaxo Synergy Planner (Beta release) .....................................28

Figure 11: Example of Assumptions behind Revenue and Cross-Selling Estimate in the Midaxo Synergy Planner (Beta release).............28

Figure 12: Initiative Mapping & Prioritization: Financial Impact versus Probability of Success ............................................................29

Figure 13: Integration/Improvement Program .................................................................................................................................................30

Figure 14: Example Section of Midaxo’s Comprehensive Post-Merger Integration Playbook ...............................................................35

Figure 15: Executing for Value Creation – Steps to Success ........................................................................................................................36

Figure 16: Creating Dependencies in Midaxo ...................................................................................................................................................37

Figure 17: Midaxo Synergy & KPI Tracking module ........................................................................................................................................40

Figure 18: Reporting on Value Creation During Integration with Midaxo Analytics .................................................................................42

Figure 19: Value Creation Reporting Cadence & Key Deliverables ...............................................................................................................43

TABLES

Table 1: Levers for Value Creation ......................................................................................................................................................................... 6

Table 2: Synergy Sources by Prioritization and Value .....................................................................................................................................13

Table 3: Value Creation Phases ...........................................................................................................................................................................16

Table 4: M&A Go, No Go Decisions .....................................................................................................................................................................17

Table 5: Sources of Value Increase/Decrease ..................................................................................................................................................20

Table 6: Value Creation Timeline .........................................................................................................................................................................31

Table 7: Synergy Sources - Examples .................................................................................................................................................................32

Table 8: Costs to Achieve – Examples ...............................................................................................................................................................33


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Authors

TOM ALLEN – HEAD OF M&A AND CORPORATE DEVELOPMENT, MIDAXO

[email protected]

Tom has led and worked on numerous M&A projects, many being cross border. Tom’s experience spans acquisitions, divestments, due diligence, VC rounds, valuations and IPO to the London Stock Exchange. In his role at Midaxo, Tom is part of the executive team helping to lead strategy and execution across new initiatives, product development and improvement, business development, strategic partnerships, product launches and the development of digital M&A solutions for Midaxo’s global client base.

Tom is a Chartered Accountant (ACA), member of the Institute of Chartered Accountants England & Wales (ICAEW), started his career in financial services at PwC and then worked as an M&A advisor for a London based M&A/corporate finance boutique.

CARLOS KEENER – FOUNDING PARTNER, BTD

[email protected]

Carlos is an M&A and integration specialist and Founding Partner of Beyond the Deal (BTD), a full life-cycle M&A, integration and separation consultancy with an enviable track record in helping clients deliver long term value beyond the deal for more than 100 clients around the world. He brings twenty years of international M&A, organizational change and project management experience across a variety of sectors including pharmaceuticals, retail, FMCG, media, oil & gas and natural resources.

Since establishing BTD in 2001, Carlos has advised dozens of organizations including Coca-Cola, E.ON, Centrica, Unilever, Xstrata and dozens of other organizations around the world, including support for the merger of GlaxoWelcome and Smithkline Beecham.


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mailto:tom.allen%40midaxo.com?subject=

mailto:carlos.keener%40btd.consulting%20?subject=

Sources/ReferencesM&A Coach – Value from Integration, Kaija Katariina Erkkilä & Anneli Valpola, 2011 Note: Kaija Katariina is co-founder of Midaxo

Strategy Business – Seven Steps for Highly Effective Deal Making

https://www.strategy-business.com/article/Seven-steps-for-highly-effective-deal-making?utm_campaign=PostBeyond&utm_medium=Social&utm_source=LinkedI%E2%80%A6

Synergy Trap, Mark L Sirower, 2008

Leading the Deal: The Secret to Successful Acquisition & Integration, Thras Moraitis & Carlos Keener, 2019


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About MidaxoA Complete Software Solution for M&A and Corporate Development

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About BTDAchieving merger, acquisition or divestment goals remains challenging despite

decades of experience and available ‘best practice’. Outright failure is rare, but

underperformance is endemic and often ignored.

Beyond the Deal is a specialist consultancy that helps business get more from their M&A, more quickly. We provide advice, planning, programme management and training services in acquisitions, integration, disposals and separation to mid-market and larger clients around the world. Our connected, collaborative style and approach blends leading processes, experience and a deep understanding of the leadership behaviors needed to help our clients do deals that deliver value, not just complete.

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Leading the DealThe Secret to Successful Acquisition and Integration

By Thras Moraitis and Carlos Keener

‘The first essential step in boosting the probabilities of success in M&A.’

Mergers and acquisitions are a fundamental part of the business landscape, yet over half fail to deliver on their objectives

Targeted at busy members of the executive committee, who ultimately bear responsibility for the success of the transaction

Features unique real-life examples and winning strategies

Provides an essential set of prompts to help ensure you apply leverage at each of the critical points in the M&A process

Leading the Deal is the first essential step in boosting the probabilities of success, providing unique new insights into established strategies, and detailing the key psychological leverage points that allow leadership teams to effectively harness people power in the M&A process. Leading the Deal supports leaders at each step in the M&A journey and reveals a clear pathway to achieving M&A success.

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Synergies in M&A

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