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Accelerating Returns: The Importance of Revenue Synergies as a Separate Stream

Creating greater value and synergies for companies and their customers is one of the main objectives of any merger & acquisition project

This can come from increasing the top-line revenue, entering new markets, and gaining market share, reaching a critical mass, acquiring, and leveraging new technologies and new talent.  The list goes on.

Motivation aside, achieving post-merger revenue synergy is one of the most important goals companies must create value from a deal.  However, despite their potential, a mere 20% of revenue synergy centric acquisitions succeed. 

In a recent poll we conducted among M&A professionals, we found that:

  • 43% achieved their goals
  • 50% use or don’t use tools
  • 50% satisfied with process

In a traditional way of integrating a new company, the main focus is generally on cost synergies as they are often more visible and more easily measured. When taking a whole lump sum of synergies (revenues and costs), we mainly focus on cost parts rather than synergy parts.

Understanding, measuring, and tracking revenue synergies is more complex and unique to every deal.  To successfully realize real revenue synergy, it is necessary to take a disciplined approach, involve people from different functions (R&D, Marketing, Sales, HR, etc.) to develop a plan together in order to determine the best direction.

So, how can teams do better?

This probably sounds very familiar:  we are integrating a new company; we have a very small team fully dedicated to the task and we have a lot on our bucket list. We need to deliver results in a very limited time with limited resources and lots of internal & external pressure. 

For different activities of the integration, there is more and less a standard process to follow, for instance for cost synergies, we need to identify all sources synergies/cost saving and decide on an action plan to reach it. 

However, for revenue synergies, each deal requires, essentially, a new approach. Revenue synergies should be dealt with in the same manner as when a company offers a new product/solution in an existing market and/or if we want to offer an existing offer to a new market. 

The importance of addressing revenue synergies separately

Tackling revenue synergies with existing resources implies resource reallocation from business-as-usual towards revenue synergies creation, which results in a decline in business-as-usual revenues. To counter this, organizations need to set up a real action plan and allocate necessary resources in order to avoid destroying value and to make sure additional revenues are created.  

To help guide initial thinking MergerWare offers the following set of issues that should be considered as well as a few key elements critical to success.  By no means is this list exhaustive but is meant to serve as a starting point.

Rules of Engagement

  • Revenue synergies need to be treated as a new and distinct business
  • “Customer” must be put at the center of this new business value creation
  • Some investment & R&D efforts are needed to create the bridge between existing offers and/or to create a new solution/offer
  • Multidisciplinary teams from both companies at all organizational levels should be involved from the beginning
  • Clear rules of engagement need to be defined from the earliest stage of the integration
  • A clear revenue synergies incentive plan needs to be designed from the beginning
  • Soft skills and cultural gaps need to be identified and addressed from the beginning
  • Real-Time Performance Tracking is key 

Key to Success

  • Structured and transparent communication at all organizational level
  • Dealing with Revenue synergies as a new potential business for business units and departments
  • Involving all stakeholders at a different level of the organization
  • Get each business’ C-level buy-in and commitment
  • Organizing annual workshops to put people from both companies together to build a shared synergy pipeline
  • Design a tailored incentive plan 
  • Close and regular follow up

MergerWare is a SaaS-based, secure enterprise digital platform dedicated to creating the most efficient M&A deal management and execution process from discovery to due diligence to post-merger integration activities. Get the real meat out of your deals by moving to the platform catering to the future of M&A. 

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Richard A. Martin