Extracting Maximum Deal Value—Seven Keys to Success

“With M&A activity showing no sign of slowing, a continuing focus on revenue synergy execution will be critical in delivering value…By understanding the sources of value and executing against the seven keys to success…executives can get a jump start on capturing value and outperforming the market.” That’s the conclusion of an October 2018 McKinsey & Company survey of 200 seasoned M&A executives from ten industries.

While intense M&A activity shows no signs of letting up, there’s also immense pressure to extract maximum value from every deal. In the McKinsey survey, the majority reported their companies had fallen short of reaching revenue synergy goals, with an average gap of 23 percent between goal and attainment—plus, the process usually took considerably longer (five years) than cost synergies (two years).

Executives cite such difficulties as: executing across functions, setting realistic targets, measuring financial impact, changing salesforce behavior, and—even focusing on the right things. According to McKinsey, there are seven solid practices that do make a difference:

1. “Understand the sources of revenue synergies”

Capturing revenue synergies calls for a thoughtful approach that identifies, evaluates, and prioritizes opportunities along three dimensions: where to sell (location); what to sell (offerings); and how to sell (go to market).

2. “Ensure revenue synergies are owned by leaders and the front line”

McKinsey research shows that companies that achieve their targets for revenue synergies ensure that leaders and operators take ownership of the effort right from the start.

3. “Quantify opportunities thoughtfully using customer-level insight”

Value-lever analysis and benchmarks are readily available for estimating cost synergies, but revenue synergies pose an altogether different challenge. In defining an accurate and achievable estimate, the trick is to complement top-level estimates—usually driven by educated assumptions about market-share gain, revenue uplift, or increased penetration—with detailed bottom-up customer insight.

4. “Build your strategy with your salesperson in mind”

The trick is to understand how the strategy will affect the individual salesperson, especially in terms of changes to the sales cycle and the salesperson’s capabilities and capacity to carry a broader product portfolio.

5. “Launch bold targets and incentives to make it worthwhile to achieve them”

In McKinsey’s survey of M&A executives, transparent targets and carefully crafted financial incentives ranked among the top four strategies for driving revenue-synergy capture.

6. “Install the support needed for execution”

Capturing revenue synergies calls for new organizational muscle and capabilities. Getting sales data to flow to the appropriate P&Ls in the relevant business units poses another challenge. A team may spend months mapping and redefining processes, updating systems, and running tests to eliminate glitches.

7. “Keep score”

Tracking and measuring performance—and making that a core part of the management dialogue—are key to success in any corporate initiative, but particularly thorny in the case of revenue synergies. The most effective companies in merger situations create a balanced account-level scorecard of “leading” and “lagging” metrics to ensure laser-like focus on upside among the many competing priorities.

In today’s promising economy—revenue synergies definitely cannot be taken for granted. Executives who succeed require a firm, clear grasp of where those synergies lie as well as the skill and persistence to capture them.