Mergers and Acquisitions: Realizing the Alluring Synergies

Nov 24, 2009
Wayne Wanless

Many a merger and/or acquisition are justified by the illustrious (and often illusive) �synergies,� but less than 15% of these synergies ever come to fruition � why?  Why are we so good at identifying companies that will benefit from a merger, and then valuing synergies, but we are unable to execute and capitalize this value once the deal has been inked?

Through the course of my career I have been involved in several (and advised on several other) mergers and/or acquisitions, and the resounding reason I�ve found for failed realization of synergies is an improper (or over confident) understanding of the target company�s Information Technology systems/processes.  Looking at the �book� is not enough, while the numbers may look great, and the management team capable, the synergies come from an ability to capitalize on a combined entity and the economies of scale that combined entity produces.  However, many (most) miss this mark because they have not done a proper audit of the target systems and processes.

What does a proper audit look like?
A proper audit consists of a review of the targets system documentation, interviews with key business users, and key development/support staff.  The goal of an interview is to get a real assessment of the targets infrastructure and business processes. The audit should produce "Executive level" documentation listing system information, analysis (pro's and con's) and recommendations (areas of value and areas requiring attention)

Who should do it?
Ideally, both sides should perform some type of assessment, however that is rarely the case, so at a minimum the acquirer (buyer beware) should perform due diligence, and have a team put together. If the Owner is arranging for an audit, it is best performed by an external (independent) team to maintain clear lines of delineation.  If the audit is being performed by the Buyer, then it can either be performed by internal or external teams.

I have worked with a particular client that was interested in selling her business.  The Client had my team perform a technology assessment, which was included with the investment book sent to prospective buyers.  This step allowed the buyers to assess the business from a holistic perspective, prepare questions accordingly, and shortened the sales cycle.  The Owner benefitted from the proactivity, and the Buyer was quite impressed with the transparency.

What will it tell me?
As an Owner, you will be able to identify areas of your business that are valuable (perhaps more valuable than you had thought), and areas of your business that require investment (to assist in your negotiations).  As a Buyer, you will identify processes that produce value, systems that can be integrated into your environment, and areas that will require additional investment.

The answers you receive will well justify the investment, and it will assist immensely in producing a realistic (read implementable) plan of achieving the synergies that justified the merger/acquisition.