Synergies: The Key To A Successful Merger Or Acquisition

When companies merge or one company acquires another, working together can help them do more than they could alone.

This is called having "synergies." According to Harvard Business Review, 70-90% of company mergers fail to take full advantage of these synergies. 

Most companies can see big benefits when they use synergies well. They can sell more, save money, sell each other's products, and reach new markets. The idea is that two companies together can be worth more than just the separate companies added up. 

What Are the Different Types of Synergies?

The idea behind seeking synergies in mergers and acquisitions is that two companies together will be more valuable than if you added up their values separately. The financial benefits of merging two companies can be grouped into three main types:

Revenue Synergies:  The combined companies can sell more products or services than they could separately. For example, selling each other's products or reaching new markets. Realizing revenue synergies often takes more time compared to cost-cutting. Also, revenue growth projections are less specific and may not materialize.

Cost Synergies:  When the combined companies can save money that they couldn't save individually. For example, cutting duplicate jobs or closing extra factories. Cost-cutting is often faster to implement after mergers and acquisitions.

Eliminating personnel, facilities, and operations overlaps can lead to direct savings. However, excessive cost-cutting can also negatively impact talent, company culture, and the ability to grow in the future.

Operational Synergies:  When the companies can work better together. For example, sharing ideas, processes, or technology to work more efficiently. Improved operations often require an investment upfront to harmonize systems and share best practices. 

This takes strategic planning, leadership commitment, and buy-in across both organizations. Operational synergies can lead to sustained performance gains over the long term.

How to Identify and Achieve Synergies

Capturing the highest synergies and value creation in a merger calls for methodical planning and unified execution grounded in a shared vision and open communication between leadership and staff alike.

Conduct Thorough Due Diligence:  Before acquiring a company, gather information about its finances, operations, workforce, products, etc. Carefully studying the business helps realistically estimate possible synergies and challenges. You can compare things like costs, revenues, and margins between the companies to find areas to save money or make money together.

Make a Synergy Plan:  Organize expected benefits into categories like revenue growth, cost savings, and business improvements. Estimate timeframes, investments required, risks, and returns. Focus first on the largest synergies that are most achievable. Adjust the plan as you get new information.

Communicate the Synergy Plan to Stakeholders:  Explain the vision and plan for synergies to investors, staff, customers, and others. Address concerns transparently. Regularly monitor performance to see if integration is on track to achieve targets. Compare actual results versus projections, and make adjustments as needed. Tracking keeps everyone on board and catching issues early.

Examples of Successful M&A Deals that Have Generated Significant Synergies

Major corporations often turn to mergers and acquisitions as a strategic path to expanded growth and success. For example, some of the biggest names have joined forces over the past two decades to create global powerhouses:

The Walt Disney-Pixar Animation Studios Merger

When Disney bought Pixar Animation in 2006, it combined Disney's iconic characters and global movie distribution with Pixar's creative storytelling and 3D animation technology. They have produced hugely popular animated films like Toy Story 3, Up, and Frozen. 

The merger gave Pixar access to Disney's marketing muscle and merchandising while Disney could leverage Pixar's technological expertise in computer animation. This synergy has allowed the two brands to remain leaders in animated entertainment for over a decade.

The Anheuser-Busch InBev-SABMiller Merger

When the two biggest beer companies combined in 2016, AB InBev gained more breweries and sales in fast-growing markets in Asia, Africa, and South America. SABMiller got access to AB InBev's distribution networks. 

Together, they can grow faster globally and cut costs by combining operations. The scale of the combined mega-brewer also strengthened its negotiating power with suppliers and distributors to boost profitability further.

The Bayer-Monsanto Merger

When Germany's Bayer pharmaceutical company acquired US seeds and agrochemicals giant Monsanto in 2018, it combined Bayer's crop protection business with Monsanto's expertise in seeds and biotechnology. 

The combined company is a leader in agriculture, able to benefit farmers with an integrated offering of products. With overlapping business lines, the merger enabled streamlining roles to reduce costs while allowing cross-selling products and services to the same customer base.

Summing Up

As these major mergers show, bringing together two industry leaders can yield tremendous synergies and value creation. The combined companies can achieve deeper market penetration, operational efficiencies, shared expertise, and more. 

For business owners considering M&A, carefully assessing complementary strengths and clear synergy potential is critical to transforming deals into springboards for enduring growth and leadership.