Revenue synergies are often the most challenging synergies to achieve and can take time to fully realize. To put this into perspective, only ~25% of businesses achieve over 80% of their targeted revenue synergy goals1. Companies which have got it right demonstrate a clear structure and plan to execute the synergies and place importance on managing cultural differences. Let’s take two extreme examples:
- Disney’s acquisitions of Pixar in 2006 is well publicized as one of the most successful M&A deals this century. Value creation was clear; Disney’s contract with Pixar to release their movies had expired and the partnership made financial sense to continue. Disney was able to help Pixar with releasing movies on a more frequent basis, and furthermore, Disney’s ability to market products to children drove further revenue synergies through merchandising as well as opportunities for Pixar brands to be incorporated in Disney theme parks. Importantly, Disney considered Pixar’s culture and leadership style to bring value to Disney, and additional responsibilities were given to Pixar’s leadership (John Lasseter was given control of Disney Animation Studios).
- On the opposite end of the spectrum, the AOL – Time Warner merger is renowned for being a failure. AOL considered the deal would provide access to Time Warner’s cable network and content, and Time Warner was expecting millions of new subscribers. The underlying reasons for the failure are largely driven by significant differences in corporate cultures, and a lack of execution discipline. Steve Case, AOL’s founding CEO, is famously quoted as saying “Vision without execution is hallucination”. According to Case, the legacy AOL business considered Time Warner to be old fashioned, while Time Warner considered the AOL part of the business to be a threat.
These example case studies illustrate the importance of developing and implementing strategic plans and being able to drive cultural changes to achieve a common goal.
Impact Point Co. considers three critical success factors which companies must get right to achieve their revenue synergy targets:
Devote time to discovery and strategic planning
Many companies are often excited about moving to cross-selling opportunities as soon as possible, post-acquisition. This may result in some short-term achievement of synergies, however, due to a lack of discovery and planning, the integrated business is not maximizing synergy potential. Critical to success, is understanding the future state product suite, and having a tactical plan to cross-sell to the combined customer base. You should consider the following five types of revenue synergies:
- Sales of parent’s existing products to the acquirees’ customers
- Sales of the acquirees’ existing products to the parents’ customers
- Sales of new bundled products to existing customers (up selling)
- Sales of new bundled products to new customers / markets which were previously inaccessible.
- Expansion into new geographic markets through scale
Post deal-close, it is worth spending the time to complete detailed discovery and analysis sessions with key participants from sales teams from the acquiror and acquiree. Focus on asking the right questions to develop detailed analyses and plans to execute the synergies:
- Who are the target customers and what products are attractive to these markets / customers?
- Who is going to own the customer relationship moving forward?
- What products should be bundled?
- What is the branding strategy?
- What future offerings in the R&D roadmap can be cross sold?
- Where are our existing customers and market segments?
- Where are there expansion opportunities beyond current customer and market base?
- What are competitors offering in these new markets?
- How do we unify our go-to-market strategy?
- How do we streamline and align our sales and pricing process?
- How do we enhance sales enablement and incentivize our people?
- How do we integrate our sales teams and align territories / responsibilities?
Implement effective Targeting, Tracking, and Incentivisation schemes
Most synergy assessments are completed pre-merger, where the seller is unlikely to provide a comprehensive level of access and time from the sales team to explore these opportunities. In cases where there are potential anti-trust issues to navigate, the seller may be unwilling to provide sensitive data such as customer lists or pricing terms, which can affect the precision of the synergy assessment, often limiting the analysis to a top-down approach. It is therefore paramount that a detailed bottoms-up approach is adopted post-acquisition, where better data access and management time and attention can be focused on the targeting approach.
Detailed analysis on a post-close basis may result in targets which often exceed the initial pre-acquisition approach, simply because of conservatism and discounts applied to initial targets where limited information was made available. This analysis entails the quantification of the discovery and strategic planning discussed previously, where the product suite, customer targeting, branding, and other expansion opportunities are considered. The analysis should entail a specific customer by customer approach, including a detailed action plan.
Once the targets and plan has been established, it is time to develop a tracking mechanism for cross-selling and to develop potential commissions overlay to incentivize the sales organization to achieve cross-selling targets.
Change Management and Corporate Culture Alignment
Change management is often overlooked as a critical success factor, however, as outlined using the extreme case study examples, this can be the most crucial factor in the success or failure in the merger. The following initiatives should be considered to make effective change:
- Influence sales behaviors by introducing clearly aligned accountability and incentivization. Stretch targets should be given but make them realistic. In many instances, a commission overlay should be planned to allow for duplicative commission payments during the transition period (e.g. where there may be shared customers).
- Plan and implement a SKU rationalization initiative if this is needed. The benefits may include a more streamlined and consolidated SKU list so that it is easy for sales team to deliver a common set and this should help with clarity in the selling process.
- It is critical for the Management teams from both legacy companies to be fully aligned with a clear and consistent message given to all employees. Uncertainty and/or misalignment in messaging risks potential attrition and may impact performance.
- Make sure the clarity is made over jurisdictions / territories as part of the integration of sales teams. This is particularly important in the early stages of the integration if the acquiror and acquiree were previously competing in the same territories and the same accounts.
These three critical success factors will go a long way to helping you achieve your revenue synergy goals and could be the difference between integration success or failure.
1 Deloitte survey, with 528 executive survey respondents