Capturing Post-Merger Value, Part Two: Revenue Synergies

Too often companies focus deeply on cost synergies but fail to examine revenue synergies and the benefits of an improved “commercial engine.”
Vincent RyanApril 15, 2019

The first part of this three-part series looked at Capturing Post-Merger Value from Commercial Integration.

An acquisition, especially a major acquisition, provides an ability to not only combine existing capabilities but to reset and adjust the key commercial elements that drive the business’s economics. Understanding the value-creation potential that is available in any acquisition is critical to winning bids without experiencing the “winner’s curse.”

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Value creation comes from three areas: cost synergies, revenue synergies, and an improved commercial engine. Too often companies focus deeply on the first of the three and neglect the others.

Cost synergies, such as from operations, procurement, back-office, and IT, are typically viewed as “hard” numbers and included in analyses. Revenue synergies, from cross-sell and up-sell and the impact of an improved commercial engine, can be significant. However, many times they are relegated to the “icing on the cake” category and not included in the core analysis. We believe that this is often because companies lack the experience or confidence in conducting this kind of analysis. This information can be known and can be a competitive weapon if done well.

Sizing the Synergies

Bulend Corbacioglu

Assessing potential economic improvements requires detailed commercial analysis and planning. This analysis generally needs to cover a number of areas:

  1. The customer decision-making dynamics of the products and services to be assessed. The decision-making unit (DMU, the team of individuals participating in a buyer decision process) and the decision-making process (DMP, how the buyer makes choices) of the related offerings can be aligned and compared. Ideally, there should be some connection so that relationships and strategic positioning of both organizations can be leveraged to accelerate adoption.
  2. The customer value-creation potential. The best cross-sell and up-sell opportunities come from situations where the customers realize an important value-creation effect. Too often acquirers look primarily at their own value creation and fail to deliver a compelling advantage to the customer. Yet, they are surprised when they fall short of their targets or expectations.
  3. The risks or disincentives that may exist for customers. Too often acquirers fail to consider that besides the positive incentives for customers, there could be disincentives or risks that customers will have concerns over (e.g., the combined business may be viewed as “too many eggs in one basket” when customers are looking for multiple sources).
  4. The repositioned combined offerings. This includes the combined products and services, the brands, and the messaging to the market based on customer and market perceptions of the legacy organizations, as well as the potential integrated value proposition.
  5. A refresh of pricing approaches and tools. This includes things like quote generation and template RFP responses, as well as the rules of engagement that reinforce the message (e.g., dual brands with differentiated value proposition) and drive margin.
  6. Reimagining the product service roadmap. In the long-term, a roadmap needs to be developed for new product and service innovation that leverages the companies´ complementary capabilities.
Capturing Benefits

Kevin Mulloy

The efforts to understand and capture the new benefits starts before the deal closes and should continue throughout the post-merger Integration phase.

Prior to deal close

    1. Complete initial customer and market research. This work goes beyond the typical diligence work focused on customer economics, concentration, satisfaction, and retention. It should include key DMU/DMP dynamics for major segments, the initial view of overall value creation potential, the potential end customer value-creation levers, and the potential end customer risks and disincentives.
    2. Develop initial cross-sell and up-sell plans. These should be realistic plans and based on specific initiatives with the required support.
    3. Develop initial combined entity go-to-market plans. This should be the high-level plan that provides direction (and will be confirmed and fully detailed post-close when the full leadership team can be brought into the process).

After deal close, short term (first 30-60 days)

    1. Develop and launch immediate market messaging. Given the elevated risk of confusing the market with the messaging, it is imperative to quickly align the messaging based on the combined value proposition (i.e. “what’s in it for the customers and partners”) and roll out the necessary tools to convey the message (e.g., website, brochures, other collateral, case studies).
    2. Develop and launch immediate communication plans. Similarly, immediately launching a clear communications plan for customers, channels, and the sales team that is consistent with the market message will help mitigate competitors’ attempts to poach.
    3. Finalize the integrated go-to-market model and the cross-sell and up-sell plans. This is a key element to both setting the targets and defining the go-to-market model to deliver on those targets. It provides the customer segment coverage and ensures the necessary coordination and interactions required for cross-sell and up-sell, like organizational structure linkages and specialized support roles.
    4. Communicate the immediate integrated core product and pricing. Although this may be adjusted with further work, providing a clear post-close picture is important.
    5. Assign specific cross-sell and up-sell targets to the sales force. These targets will signal intent and commitment to achieving cross-sell and up-sell. They will also help create early successes to both motivate the team internally and to showcase for customers for the combined value proposition.
    6. Institute an attractive cross-sell and up-sell compensation incentive/spiff. This will help jump-start the cross-sell and up-sell sales motion. Again, these plans will signal commitment while also driving behaviors. Similar to any other adjustment to incentive compensation, the organization has to ensure the plan drives the right behaviors by also checking how it would have impacted the last few years’ compensation.

Post- close, long term (60-120 days)

  1. Improve integrated frontline sales management. Too often, integration efforts focus mostly on the field sales personnel and territories; of higher value is the thoughtful integration and improvement of the sales management function.
  2. Complete detailed customer segment and value driver work as needed. Both legacy businesses might have market analytics in place, but these need to be reviewed from the combined business’ perspective. They should be updated as needed to derive the necessary actions.
  3. Finalize the repositioning of the combined offerings. The repositioning should include products and services, the brands, and the messaging to the market. It should be based on customer and market perceptions of the legacy organizations and the potential integrated value proposition.
  4. Develop refreshed pricing approaches and tools, if needed. Refreshed quote generation and template RFP responses, for example, and rules of engagement reinforce the message (e.g., dual brands with differentiated value proposition) and drive margin.
  5. Reimagine the future product service roadmap. Create or update the roadmap for new product and service innovation, leveraging the companies´complementary capabilities and the new positioning of the combined company.

When undertaken correctly, a better understanding of the potential in revenue synergies and an improved commercial engine will allow a company to bid more effectively and create more post-merger value. The understanding translates into captured value if the organization executes the post-merger integration process effectively. In our next installment, we will delve into how to run the post-merger integration process.

Bulend Corbacioglu is managing director, Germany, of Blue Ridge Partners. Bulend has been helping serial acquirers build value through acquisition and integration activities for 20 years. Kevin Mulloy is Blue Ridge’s managing director, U.S., with a focus on innovation and technology management.
Image: Getty