Realizing Revenue Synergies in M&A

Revenue synergies are often the reason for companies doing acquisitions. However, unlike cost synergies that happen instantly, they are more difficult to achieve and often go unrealized. One of the biggest problems in M&A is that when a company pursues a deal, different departments have varying perspectives on what's essential. This results in massive value leaks in the deal rationale. In this article, Chris Von Bogdandy, Global Lead M&A Solutions at Slalom, discusses his framework for realizing revenue synergies in M&A. 

“Our (IMO) job is not to create a perfect solution that will run forever. Our job is to get to the synergies and to stay focused on the synergies.” - Chris Von Bogdandy 

Capturing revenue synergies post-LOI

A survey of around 150 companies was conducted about their deal objectives, specifically on realizing revenue synergies. Surprisingly, almost half (48%) admitted they had lost track of their revenue synergy goals. This is why Chris developed a framework that translates the deal thesis into a synergy model, so that everyone will understand the key drivers for synergies. They break the deal thesis down into 4 buckets:

1. Spinoff - Is there a spinoff resulting from the deal?
2. Standalone business growth – How to enhance the revenue velocity of the acquired entity?
3. Cost synergies - consolidation of functions, vendors, or optimizing supply chains.
4. Revenue synergies - What does the target company sell, how they sell it, and who do they sell it to.

From here, they break it further down into activities and milestones that they have to hit to unlock those synergies.  

Understanding customer journey 

The first step to realizing revenue synergies is understanding the customer journey of both companies. The best way to do this is to spend time with customers directly. However, there are regulatory issues that might limit this, so firms can use third-party services, like a "clean team", to understand customer perspectives. 

The clean team must evaluate services as if they were the customer and examine online feedback and technology references. Through this, companies can discover varied approaches to selling products or services. After this, Chris focuses on 3 things:

1. Customer’s “moment of truth” - These are well-established customer success metrics that pinpoint when a customer decides to buy or renew the services. The goal is to identify how well-positioned is the company to deliver in those moments, and learn how to enhance them further. 
2. Measuring customer success rate - Regular feedback is crucial, especially in M&A. Annual or quarterly feedback isn't sufficient; firms need consistent 'listening posts' to validate their deal's assumptions and identify areas of added value or shortcomings. 

3. Employee satisfaction - High employee turnover might indicate issues, and reviews on platforms like Glassdoor can reflect the company's service quality. It's been observed that poor corporate environments can negatively impact customer experiences. Hence, comparing employee feedback with customer and partner feedback is crucial.

Deal thesis refresh

Despite a company's success with its method, it's essential to recognize that other firms might have different yet effective techniques. After finalizing a deal, revisit the initial agreement and synergies to assess progress and identify areas for improvement. 

This "deal thesis refresh" should happen about three months post-deal. The first 100 days after closing a deal are crucial, not just for integration but to ensure the alignment of the deal's original objectives. The focus should be on the deal synergies and thesis rather than merely measuring integration completion.