The value of an acquisition is decided after the signing. The price is fixed, but the synergies are not: they depend on how quickly and how well two organisations become one. Most of the value that is lost in M&A is lost in integration, through delays, distraction and decisions postponed until the opportunity has passed.
Every deal starts in a hole
Integration costs, such as systems, severance, rebranding and advisers, are spent in the first year. Cost synergies build up as functions are merged, and revenue synergies come last, once sales teams and products are combined. The cumulative curve therefore falls before it rises.
In this plan, cost synergies of 60 a year are reached in month 18 and revenue synergies of 40 a year start in month 12 and take two more years to mature. Integration costs 90, all in the first year. The cumulative result bottoms out at minus 68 in month 12, turns positive only in month 25 and reaches 89 by month 36.
Levers that bring the payback forward
- Decide the organisation before day one. The top two levels of the new structure, announced at closing, prevent months of uncertainty and departures.
- Sequence by value. Start with the synergies that are large and fast, such as procurement and overlapping overheads, not with the ones that are easiest to agree.
- Protect the revenue. Assign the key customers of both companies to named leaders, so competitors cannot use the transition to win them.
- Run it like a programme. A small integration office, weekly decisions and a synergy tracker that finance signs off, line by line.
Integration is where strategy becomes cash. Companies that plan it before signing, move fast on the big decisions and measure the synergy curve every month turn a good deal on paper into value for their shareholders.
Bartor S.
Founder
