Revenue Synergies in Acquisitions in Search of the Holy Grail
Total Page：16
File Type：pdf, Size：1020Kb
Revenue synergies in acquisitions In search of the Holy Grail Revenue synergies in acquisitions | In search of the Holy Grail In search of the Holy Grail Although most deal synergies are anticipated to come from revenue,1 few acquirers actually achieve more than 80 percent of their target Global M&A deal volume has surged How is the pursuit of revenue • Casting a wide net when identifying in recent years—in 2016 alone, global synergies working out? With less revenue synergy initiatives M&A deal value was a whopping than a quarter of acquirers reporting • Executing quickly on immediate USD $4.4 trillion from approximately that they are substantially meeting opportunities for quick wins 45,000 deals.2 What’s driving these their goals, there is clearly room for deals? In many cases, companies improvement.4 Although revenue • Leading with innovation are looking for revenue growth. In synergies are assumed to be riskier • Using data and analytics to drive a previous Deloitte survey of 528 to achieve, what is surprising is the actionable insights executives engaged, respondents extremely low percentage of acquirers indicated that nearly 60 percent of who have cracked the code to achieve • Planning for commercial integration the deal synergies they were seeking revenues synergies. At the same time, early with dedicated resources were anticipated to come from some acquirers have demonstrated revenue rather than cost sources. the ability to follow leading practices in Achieving revenue synergy is often Capturing revenue synergies ranked achieving revenue synergy. What are difficult—but it’s far from impossible, as second on the list of top concerns those leaders doing that others aren’t? these leaders have shown. Inside, we for acquirers.3 take a closer look at the current state of In this report, we identify several of revenue synergy in M&A—and how to the strategies and practices adopted increase the odds of success, based on by leaders—those companies that are the approaches taken by some of the consistently able to meet their targets companies with a proven track record. for revenue synergy through deal making. They include: What is your company's top concern in a new acquisition? Efficiency and effectiveness of 22% change management Capturing revenue synergies 19% Quality and timeliness of data 19% Capacity of management team 16% Capturing cost synergies 15% Speed of decision-making 9% 1 Revenue synergies in acquisitions | In search of the Holy Grail Success is elusive— but not for everyone Nearly a quarter of acquirers are able to achieve at least 80 percent of their revenue synergy targets Our survey suggests that a small group regularly achieve less than 40 percent to the scope of synergy opportunity of “Leader” firms—less than a quarter of their targets. Leaders tend to be for a deal, as discussed more below. of those surveyed—are successful larger in size, with 33 percent of the Ultimately, taking a portfolio view of in reaching at least 80 percent of highest achievers having more than revenue synergies—one that combines their revenue synergy objectives. $5B in revenue, compared with only short-term quick wins and longer-term On the other hand, some “Laggards” 12 percent of all other respondents. innovation—may be an ingredient for consistently come up short—16 percent This size relationship is important revenue synergy success. Percent of revenue synergy target achieved Over 80 percent of target realized 60 percent of firms achieve 23% 40–80 percent of their goals 33% 17% 27% Only 24 percent of firms achieve 16 percent of firms achieve $500M–$2B $2B–$3B $3B–$5B >$5B >80 percent of their goals <40 percent of their goals Company size (revenue in dollars) Less than 80 percent of target realized 12% 32% 27% 29% 100% 80–99% 60–79% 40–59% 20–39% 0–19% $500M–$2B $2B–$3B $3B–$5B >$5B Company size (revenue in dollars) 2 Revenue synergies in acquisitions | In search of the Holy Grail Critical success factors Five actions that may help enable revenue synergy capture 1 Pursue the low-hanging fruit a. Align around cross-selling and channels b. Enforce efficient decision making on goals, mindful of operating model implications 2 Cast a wide net a. Pursue multiple types of synergy initiatives to increase chances of success b. Lead change management activities across both organizations c. Enlist customers, partners, and other key stakeholders in guiding and informing key decisions 3 Lead with innovation a. Invest ambitiously in growth opportunities with long-term potential b. Balance near-term and long-term synergy initiatives c. Lay the foundation for go-to-market transformation 4 Dig into the data details a. Use quality data to drive analytics-driven insights b. Establish and empower a dedicated integration team c. Budget for success and incentivize teams 5 Plan the work, work the plan a. Plan for pre-close synergy and clean room activities b. Activate integration teams with commercial analytics capabilities c. Remain focused on targets 3 Revenue synergies in acquisitions | In search of the Holy Grail Pursue the low-hanging fruit Leaders tend to aggressively pursue near-term, tangible synergy opportunities “ Our near-term focus is almost entirely on cross-selling accounts and opportunities across product distribution channels for the different lines of business.” —SVP Corporate Development, global financial services (serial acquirer) Between our hands-on experience with Perhaps surprisingly, however, not all made up of personnel from both clients, and our database that catalogs acquirers pursue cross-selling and legacy organizations combined are thousands of transactions, we have shared distribution channel activities three of the most common tactics determined that more than 40 percent equally aggressively. Cross-selling used by firms to pursue cross-selling. of revenue synergies come from cross- and sharing distribution channels Still, for any such initiative, making early selling—and our survey respondents are primary tactics for larger firms, determinations about where to focus agree. They identified cross-selling but other firms tend to rely on more in order to achieve growth, as well as and the ability to share distribution difficult ways to pursue revenue identifying new operating models, can channels in existing markets as the synergy (such as accessing completely accelerate synergy pursuits. two easiest synergy opportunities and new customers), likely risking their best ways to achieve quick wins for overall success. Front-line systems, future momentum. new incentives, and sales teams What cross-selling tactics are most commonly used? 71% 71% 71% 65% 67% 60% 65% 62% 62% 55% 55% 57% 50% 50% 50% 40% Percent of cohort of Percent using tactic Newly combined New sales Enablement Adjustments Bundle products Cross-product Cross-product Geographic or joint sales incentives of systems to a product and services or cross-service or cross-service expansion team efforts (e.g., dual and processes or service advertising price subsidies compensation to improve to increase or media or promotions to sales teams) sharing of complement sales leads with others and others in portfolio High achievers Low achievers 4 Revenue synergies in acquisitions | In search of the Holy Grail 5 Revenue synergies in acquisitions | In search of the Holy Grail Cast a wide net Leaders often pursue multiple synergy initiatives in parallel, enhancing their chances of success “ We look for many singles and doubles on revenue synergy, instead of one home run.” —VP of Strategy, global technology firm Leaders tend to pursue more types of Meanwhile, Laggards tend to focus their revenue synergies for a given deal. Given efforts on only a handful of initiatives, often the risk inherent in any individual revenue those connected to more limited pre-deal synergy initiative, this type of diversification planning. This increases the risk of not can create a virtuous cycle of growth- meeting their targets, since there are fewer enabled opportunity expansion—increasing other opportunities to compensate if a the odds of meeting targets. Developing particular initiative does not materialize. such a broad portfolio of revenue synergy opportunities increases the importance of engaging a variety of relevant stakeholders, from key customer accounts to existing and potential new commercial partners to enablers in the supply chain. What types of synergies are most commonly pursued? 67% 66% 66% 63% 61% 62% 62% 59% 56% 58% 53% 53% 53% 53% 52% 49% pursuing synergy Percent of cohort of Percent Access new Access new Increase pricing Deploy International or Cross-sell Share Adjust pricing markets customers power on more complementary cross-boarder products and/ distribution strategies concentrated products revenue or services channels for higher market and/or services synergies to existing in existing overall revenue customers markets (e.g., bundling) High achievers Low achievers 6 Revenue synergies in acquisitions | In search of the Holy Grail Lead with innovation Leaders maintain long-term innovation priorities to pursue the largest growth opportunities from a deal “ In some cases, the acquired business loses its ‘secret sauce’ during the integration, as it conforms with the acquirer’s way of doing things, and then starts to stagnate. If there is a focus on what will really drive value and innovation early on, then this stagnation can be avoided by laying the right long-term foundation.” — VP Product Development, multinational manufacturer Truly outsized and sustainable growth The most successful firms clearly time. This balanced portfolio of from deals, just as with organic growth define these innovation priorities initiatives improves Leaders’ ability to efforts, often comes from long-term and use them as planning inputs capture value from their business of innovation in the products and (56 percent of Leaders, compared with today, while driving larger value by way services that a firm offers. Combining only 34 percent of Laggards).