Revenue Synergy Realization — Why you did this deal in the first place!
Revenue Synergy Realization — Why you did this deal in the first place!
There is no faster way for organizations to grow than through acquisitions — and synergy realization is the north star of the deal. Synergies play a central role in the deal thesis, explaining how an acquisition accelerates an organization’s strategic journey. However, once the deal is done and the integration team takes over, the synergy north star often loses its luster or is lost altogether.
A recent survey from Slalom indicates that almost half of all integrations lose track of the desired synergies outlined in the deal thesis. Instead of focusing on deal synergies, these integrations focus on the integration of the functional silos and “keeping the lights on” at the acquired company.
While it is the role of the deal sponsor to accomplish the deal thesis and revenue synergy targets, it is the role of the Integration Management Office (IMO) to track and drive synergy realization. Tracking value realization is one of the key differences between an IMO and a Project Management Office (PMO). A PMO mostly focuses on delivering a capability on time, on scope, and on budget. It probably warrants another blog post to expand on the difference between an IMO and a PMO.
One of the key challenges for the IMO is to balance the realization of synergies while not disrupting the acquired business momentum, which can be expressed in their revenue growth or innovation velocity. At the same time, the IMO supports functional integration workstreams in their efforts to absorb the acquired company’s functions and optimize its operations. These three objectives are related but sometimes at odds.
The following is a process for successfully transitioning from deal-making to deal value realization while keeping the synergy goals at the center of the integration. This process starts with completing the Letter of Intent (LOI) at the earliest or the Definitive Agreement (DA) at the latest.
1. Translate deal thesis into synergy model
The IMO meets with the deal team to understand how the deal thesis is driving value for the organization. We usually overlay the deal thesis on a generic synergy model to translate a financial model to the operational building blocks that serve as the basis for the tactical objectives of the integration.
2. Establish accountability for synergy targets
Once the synergy model is created, we cluster the objectives in the model and create workstreams. The steering committee assigns accountable leaders from the acquiring and acquired company for these workstreams. This is done in the first workshop once the integration steering committee comes together. It is preferred that the acquired company leaders are part of this workshop, especially if the DA (Definitive Agreement) is signed or about to be signed. It has to be taken into account that this workshop is the first time the acquiring and acquired company leaders are working on the same task rather than sitting across the table to negotiate the deal.
3. Break down synergy targets and spread them over a period of time
Once accountability and workstreams are established, specific synergy targets are assigned, baselines established, and quarterly goals defined. The IMO works together with the workstream leads, finance teams, and the deal team to develop the measurement framework.
4. Establish cross-functional workstreams
It is the role of the workstream leads to develop charters for their workstreams and operational milestones. These milestones also have a clear link to the desired synergy realization, for example, starting to bring ‘together deals’ to market for a specific customer segment.
5. Celebrate success accomplishing synergy realization, not just operational milestone
The role of the IMO is to augment the realization of synergy realization in the progress reporting to the steering committee and stakeholders inside the organization. Nothing is more exciting than reporting on the success of the sales teams of the acquiring and acquired company to win a big deal together or enter a new territory.
Organizations are structured by functional silos. This is how budgets are created, leaders promoted, and systems and processes optimized. Without strong governance and focus on deal value, an integration will succumb to a functional silo exercise. We don’t argue that functional integration is not important. Assuming operational debt through poorly integrated acquisition is compounding and will negatively impact an organization’s ability to scale. However, deal value realization is a cross-functional exercise and should be at the forefront of the IMO as the primary focus throughout the integration.
