Deal success is challenging. Historically, almost 70 percent of acquisitions have failed when measured by the acquirer’s shareholder returns relative to the market.
A fresh take on synergies can improve results
Executives should evolve their approach to synergies to improve deal results. Based on our experience with acquisitive corporations, a recent survey of corporate development executives, and interviews with senior corporate development officers, we have identified four key tactics to improve synergies and deal results:
Don’t dismiss revenue synergies: Even though historically executives tend to discount revenue synergies, a recent KPMG survey hints that executives are beginning to embrace an approach that places more value on revenue synergies.
Use “clean teams” to uncover and achieve synergies earlier and to gain more confidence on deal theses with improved data access: Too often, pre-deal estimates of synergies are based on back of-the-envelope analyses and assumptions made with limited access to key data points. Clean teams can help acquirers improve their analyses by utilizing key data points.
More closely link synergy analyses to valuation and negotiation: Our research and client experience indicates that the best acquirers carefully inform their bid strategy based not just on their own synergy estimates, but also informed by an assessment of the synergies that other likely bidders would generate from the deal.
Use the deal opportunity to “do more” and pursue other key strategic goals during integration: Sizable acquisitions are major change events and there is bound to be corporate disruption. While integrating an acquisition is a major undertaking, many companies have found it to also be a surprisingly good time to tackle other change initiatives.
Getting synergies right can greatly enhance deal results. KPMG research and experience has identified several approaches that should help deal makers improve synergy projections and related processes, as well as help them prioritize and capture synergies post-close. Companies should not give up on revenue synergies, should pursue diligence using a clean team, align their valuation and bidding process with synergy assumptions, and use the M&A process to pursue other important business goals.
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