Synergies and deal making
Synergies a lot of the time can be the competitive advantage for a strategic buyer during the bidding process. The are also used to explain to and convince a buyers board of directors , shareholders the strategic objectives of a transaction.Once synergies have been realized an acquirer’s corporate development and business unit leaders should be credited with achieving a successful transaction.A plan should be implemented for identifying and capturing synergies prior to the negotiation with the sellers.Buyers need to have a complete understanding of the potential significance and timing of their synergies as well as their impact on cash flow, in order to understand the value that the company represents to them.
Synergies as a Competitive Advantage
Buyers can use company- specific synergies as a great competitive advantage, particularly when bidding against private equity firms.Private Equity firms for example often out bid strategic buyers by utilizing financial leverage to achieve return goals.
Until recently this strategy wasn’t easily implemented due to the economic climate. Private equity firms could only embed synergies in their bid price when the target company merges with the existing portfolio company.Due to this Strategic buyers and still are winning the competitive sales process by identifying synergies and incorporating them into their bid price.
From the get go , executives responsible for the transaction should have a dedicated implementation team ready and in place to identify, quantify and model synergies.
For the process of identification a hard look at the full range of positive potential synergies related to cost, revenue , taxation , balance sheet and most important capabilities, for example (marketing programs that unify the strengths of newly combined assets in order to deliver higher sales and lower marketing costs)
It is more lightly that a buyer will incorporate market based synergies into its bidding price than synergies that are unique to the acquirer. There is a obvious trade-off for buyers to identify synergies together with the seller. While the seller is often more familiar with untapped potential , buyers need to weigh this advantage of knowledge against the strong probability that the larger percentage of benefit will be in favor of the seller.
Executives also need to be realistic about potential negative synergies, this includes customers that may be unwilling or unable to continue their relationships with the new entity , additional regulatory costs and under funded pension obligations are also need to be considered.
Negative synergies are also often the result from losing focus during the transaction process. Teams need to distinguish between on going and one time costs and benefits. If a Synergy is inaccurately categorized it can substantially skew deal value.
For more insight into Synergies view the links below in order