What challenge(s) do our clients face?
Expectations are always in conflict with reality when it comes to synergies – over-estimations, conflicting opinions, different stakeholders, lengthy processes and changes in context and/or organization strategy all muddy the waters between what is expected and what actually happens.
The topic of synergies always takes center-stage when it comes to an M&A strategy. Potential economies of scale, manufacturing and logistics footprint optimization, more bargaining power with suppliers and clients, G&A efficiency and/or cross-selling opportunities are often used as a basis for the decision to merge or acquire a competitor. Yet after the deal is done and the post-merger integration process evolves, companies often find themselves frustrated when the synergies don´t come in at the size and timelines expected.
The challenges in accurately estimating synergies are driven largely by the nature of the environment:
- Limited available information to substantiate claims
- Competing perspectives and needs between the sell and buy sides, making it difficult to set fair underlying assumptions
- A dynamic business environment in which the context and/or organization strategy can change at any time
How do we help?
Integration helps companies to bridge the gap between expectations and reality by bringing an unbiased perspective, balance between desire and truth, proven methodology and disciplined governance.
We use a clean team approach to bring unbiased, technical recommendations throughout the process, and support our clients to:
- Identify synergy and anti-synergy levers
- Estimate value based on data, context, market benchmarks, and industry track record
- Document driving assumptions and information, and any changes that influence value over time
- Link synergies to budget, in a way that isolates them from non-M&A related projects or activities
- Design and implement the governance to monitor and control synergy capture during post-merger integration
- Prepare Leadership with the mindset, priorities, and visibility to monitor synergy capture and take key decisions
- Clarify roles and responsibilities and ownership within the team for long term synergy tracking, and potential future acquisitions
What are the benefits?
Investing in the synergy capture process relieves pressure and reduces unrealistic expectation:
- Align expectations: Establish the appropriate reality-based mindset for senior leadership to deal with synergies and reduce frustration
- Improve risk management: Map all risks throughout the process considering internal and external drivers, set clear and actionable mitigation and contingency plans, and translate to valuation adjustments
- Increase forecast accuracy: Leverage our track record to stress-test and adjust the forecasted financial phasing of synergies
- Improve synergy capture: Increase likelihood of capturing the synergies identified in the pre-deal phase through to structured governance, focus and tracking
- Understand qualitative levers: Bring early consideration of qualitative or ‘soft’ value creation levers that are crucial for the post-merger integration (e.g. culture, values, governance level, etc.) and any interdependencies with quantitative synergies
How does it work?
Our methodology guarantees an objective recommendation, informed by broad and diligent analysis and driven with an implementation mindset.
Each Synergies Evaluation is unique and can vary in terms of phases depending on the maturity of the deal, and its objective. In most cases, our approach can be divided into three major steps:
Through a joint venture, our client, one of the largest multinational food companies globally, had managed to strengthen its position in the UK food service market, becoming the leader in volume to food service business. However, they were facing some challenges in (1) the cultural fit between a family owned business, and one of the biggest food companies in the world; (2) geographical distance, with the need to connect professionals based in the UK with those in Austria daily in order to perform the work required to execute the merger; and (3) commitment from staff to realize the synergies so they could be converted into savings as soon as possible.
We performed a deep analysis of the different type of products consumption per type of POS and the specific distribution in the country, validating potential areas of development in terms of geographies and need for new product development. Together with R&D we estimated the cost and were able, during the project, to test the adherence of product lines to pubs and other on-premise clients. We developed a new GTM strategy for serving these clients with specific and tailored service level agreements.
By constructing together with the different teams and with this detailed plan supported from different stakeholders we were able to bring onboard the different parts involved around a common and more lucrative goal.
A new business model coupled with harmonized processes led to a significant gain in efficiency in the day-to-day operations and an ability to generate in-depth market insights which successfully guided product/portfolio development.
The result was £10M in confirmed synergies, driven by complimentary portfolio, better compliance, stronger planning, global sourcing and optimized back office processes. The project enabled the company to quickly become a new leader in the market without disrupting operations and delivering synergies 30% above target for the first year.
During the merger of two large companies in the private education sector in Brazil, Integration supported the client to capture synergies through the renegotiation of purchasing categories (implementation of strategic sourcing), and design of the integrated model for the purchasing area of the two companies.
There were 15 categories of renegotiated purchases (with different scopes of activity), including Health Plan, Real Estate, Third-Party IT Services, and Transport, totaling R $ 1 billion / year (USD 300 million) of spend analyzed. We developed a benchmark analysis, and led discussions with the functional areas, creating ownership between supply chain and functional leaders.
The estimated potential savings were ~R $ 30 m / year (USD 9m), with at least R $ 17 m (USD 5m) captured or secured via contracts throughout the project. As for the integrated model, we designed the 1.5 year-long supply area roadmap in addition to designing and implementing the new integrated structure throughout the project.
A multinational food company decided to integrate 2 Business Units in LATAM to gain synergies and improve their results. Along with the company restructuring, the company needed to redesign and harmonize their overhead structure in order to comply with their new regional structure.
We adjusted the current cost center structure, developed a tracking tool, and designed a governance model reflecting the needs across their organizational structure, enabling the team to manage and better control local and regional overheads.
We supported the client to define a clear and aligned strategic objective to be achieved per integration phase for each area of the new company, and detailed the action plan for the initial phase (100 days) connected to quantified synergies and investments.
A leading global Beverage company was looking to reduce costs and boosts their sales by improving the efficiency of their distribution. Our client had identified some non-competing beverage companies that may be interested in distributing their products and asked our support in assessing if this potential co-distribution alliance could be beneficial.
Integration supported the client to assess the benefits, risks and implications of these potential co-distribution alliances. The project addressed three main topics: 1) synergies and gaps analysis; 2) possible scenarios definition; 3) the development of a financial simulation tool to provide guidance on how the P&L may be impacted during price negotiations.
Negotiations reached very advanced stages, but finally our client decided not to proceed with the alliances due to other company international priorities.
OUR INDUSTRY EXPERIENCE
We serve organizations across industry sectors who are going through an M&A process, bringing our Marketing & Sales, PMI and Implementation experience to the forefront. We have served regional and international companies across Consumers Goods, Logistics Operators, Retail, Pharmaceuticals and Healthcare among others
Integration has supported many private equity managers in their challenges to become better operating partners, and steadily increase the operational value of portfolio companies. Our functional expertise, alongside our hands-on, collaborative and pragmatic approach, enables us to help our private equity clients in a broad scope of investment theses and throughout the investment cycle.