Instead of fixating on the perfect baseline, leaders should do the following: In one telecommunications merger, the failure to define customers correctly created significant dis-synergies and led the integration leader to cite a “mysterious loss of one million customers.”īut many integration efforts spend too much time pursuing perfection-and perfection is the enemy of efficiency. Many CEOs and CFOs hanker to perfect the baseline because they believe, as one CFO says: “If you don’t have a robust baseline, it’s like building a skyscraper on quicksand.”īuilding a baseline requires clear apples-to-apples output, and getting the critical categories right is essential. The baseline lays the foundation for identifying opportunities to create value, assigning ownership of the opportunities, and planning ways to execute the task and track and report results. Desire to perfect the baseline should not compromise implementation planningĭesire to perfect the baseline should not compromise implementation planning Key takeaway: Locate the most critical sources of value, recognizing that revenue and capital synergies may deliver more value than cost synergies. The CFO and integration teams need to prioritize the highest-potential sources of value aligned with overall deal rationale to maximize overall synergy value. One consumer client created significant value by redesigning its order-to-cash process and optimizing the utilization of warehouses. Actions that improve the balance sheet by restructuring working capital, fixed assets, and borrowing or funding costs can capture often-overlooked capital synergies. Cost synergies deliver faster and more reliably than revenue synergies, are easier to track, and improve the bottom line moreover, analysts are skeptical of revenue synergies.īut revenue and capital synergies can be extremely important for specific industries or deal archetypes-for example, in growth industries and high-margin industries, such as pharma, and for companies seeking a compelling equity story. Senior management and integration teams often focus single-mindedly on cost synergies during merger integration. Revenue and capital synergies are as important as cost synergies Key takeaway: Open the aperture to maximize integration value. Survey respondents admitted that more than 40 percent of their deals suffer from inadequate due diligence, and they emphasized that companies need to think beyond due diligence if they want to capture truly transformational value. 1 Oliver Engert and Rob Rosiello, Opening the aperture 1: A McKinsey perspective on value creation and synergies, June 2010. Our survey showed that due diligence often ignores as much as 50 percent of potential merger value because it does not take full transformational synergies into account. Studies have shown that opening the aperture-or looking for new sources of synergies and value beyond the value that justified the deal-can increase synergies by 30 to 150 percent above due-diligence estimates. Additionally, diligence proceeds quickly, with limited access to target information, and management bias toward the deal can skew diligence results. But financial due diligence is seldom deep or exhaustive enough to provide a solid foundation for maximizing value because the effort focuses on justifying the deal, not on creating value (in other words, “figure out what to pay for the asset versus what to do with the asset”). Due diligence is not the be-all and end-all in the foundation of efforts to maximize valueĪt the start of a typical integration effort, the integration team uses the deal model and due-diligence results to identify opportunities and set synergy targets.
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