Determining How to Achieve Deal Synergies Early On is Critical for Post-Merger Integration Success

In the complex landscape of mergers and acquisitions (M&A), ADAPTOVATE has always emphasized the critical role of People & Culture (ADAPTOVATE previously shared its view about how maintaining a strong focus on People & Culture is critical to post merger integration). Despite this focus, the harsh reality remains that between 70% to 90% of acquisitions fail, often due to the inability to generate the anticipated deal synergies¹. These synergies, which include cost, revenue, and strategic benefits, are crucial for the added value expected from a deal².

Deal synergies in the context of mergers and acquisitions refer to the additional value created when two companies merge. Cost, revenue, and strategic synergies are typically identified and agreed to during the due diligence phases (see graphic below).

A common challenge emerges post-deal closure when the integration phase begins. Despite initial agreements on synergies during the due diligence phase, companies often need to revisit and realign these objectives. The complexity of achieving increased revenue, reduced costs, and enhanced efficiencies makes it difficult to define and measure the intended value of an M&A transaction. This misalignment and lack of clear metrics can significantly slow integration progress, contributing to the high failure rate of M&A activities. Identifying objectives and key results tied to the agreed-upon synergies is essential to getting it right the first time.

Our Approach: Utilize Objectives and Key Results to Track Synergies on a Quarterly Basis

Recognizing this critical gap, ADAPTOVATE has developed a straightforward yet impactful approach to help drive successful integration of mergers and acquisitions. No matter where a company falls within the deal lifecycle, we can help integrate objectives and key results (OKRs) to create a clear roadmap for integration success. Our method involves guiding companies to focus on the top five objectives, each supported by 3-5 key results, ensuring laser-focused prioritization. While objectives may span several months, key results are reviewed quarterly, allowing for adjustments in short increments.

Here is a summary of how it works:

This quarterly focus not only drives alignment across the business but also significantly increases the likelihood of achieving the desired synergies, thereby reducing the high failure rates associated with M&A transactions.

The Current Environment

According to the KPMG 2024 CEO Outlook Pulse Survey, 78% of CEOs are confident in the growth prospects of their company. The M&A market is expected to pick up through the rest of 2024 into 2025. From an M&A environment view, 82% of CEOs are waiting until the latter part of 2024 or waiting until 2025 to seriously pursue new dealmaking.

Conclusion: Know how to measure deal synergies before pursuing a deal

With an expected increase in deals in the coming months, we encourage companies considering M&A activity to establish an effective way to measure deal synergies now. We can help. Segmenting deal objectives tied to key results to be measured quarterly will help drive efforts to achieve the expected synergies.

Footnote:

1. https://hbr.org/2020/03/dont-make-this-common-ma-mistake

2. https://corpgov.law.harvard.edu/2020/01/08/the-value-killers/

We can help. Get in touch to find out more.