Revenue synergies are often considered to be the most elusive aspect of M&A transactions. Developing a standard framework for revenue synergies, grading synergy opportunities, risk-adjusting uncertainties and market conditions can lead to quick hits and minimize execution risks.
Revenue synergies are also dependent on variables requiring new skills, methods, products or services, channels or even a new customer value proposition.
Achieving revenue synergies hinges on certain key levers that need to be executed in specific sequence to minimize risks and maximize value. These levers can be categorized into enabling, alignment, acceleration, and innovation.
The alignment of primary levers is key to value creation through revenue synergies. Value creation through alignment is feasible even when companies avoid full integration. Forward momentum can be achieved by just focusing on getting the alignment right.
Revenue growth needs a solid platform. Typical day-one items to focus on involving revenue synergy are ensuring talent retention, protection of key IP, and the stability of IT systems, among others.
Acquisitions are mostly undertaken to fill or strengthen capability gaps within existing portfolios. Having a pervasive brand strategy ensures the company is aligned on this execution.
One critical activity that should be undertaken upfront is to design safety nets for customers at flight risk. These are typically customers affected negatively by changes in policies, operational processes, or systems that tend to downgrade their experiences with the company.
Channels must reach customers in the most efficient and effective way. Channels need to be in harmony with brands and products. Products must fit the overall portfolio and align with the brand strategy.
While alignment is critical, culture should not be underestimated. Every M&A transaction and subsequent integration entails a shift in culture, as it needs to be aligned with the vision and goals of the organization and its leadership.
M&A often tends to identify cultural similarities but tends to overlook cultural differences, which can make integration efforts more challenging than anticipated.
Acceleration of revenue should follow alignment—typical successes achieved by pulling these levers is cross-selling products, increased sales coverage, enhanced reach into under-penetrated customers and new pricing structures that offer more value to customers.
Given that there is new feature development and also new product development, developing new avenues of revenue growth by integrating product roadmaps, creating market entry plans, identifying areas of competitive differentiation and anticipating customer needs and areas of growth are necessary.
Nitin Kumar is a Senior Managing Director at FTI Consulting, based in New York. He is part of the Telecom, Media and Technology practice. He has expertise across the deal continuum, including M&A and divestiture strategy, merger integration, divestiture separation, post-deal performance improvement and pre-deal due diligence in the commercial, customer, operational and information technology sectors.