In the previous article we discussed scenario based planning and how it is applied to mergers and acquisitions to handle synergies. In this article we will look at where most of the lost synergies lie in an acquisition.
As it was stated in the previous articles, the desire to achieve synergies via sharing or combining capabilities and resources is a primary motivation for acquisitions and partnerships. Far too often these synergies are missed or fail to deliver their full value and are never realized.
In this article we stated that revenue synergies are normally more difficult to identify and take longer to capitalize on than cost synergies. A recent study conducted by McKinsey shows that 38% of companies achieve 80% of their existing synergies in transactions. The data is summarized in the following chart:
On the other hand 74% of the companies achieve 80% of their existing cost synergies in their deals as stated in the following chart.
Some root causes could be missing these revenue opportunities or not being able to execute to deliver the full potential. Poor management, culture misfit or wrong timing are a few reasons why this may happen. In a future article we will discuss how RBV can be used to identify synergies and will follow up with frameworks to capitalize on the synergies.