Do Aur Do Panch

Synergy is achieved when more value is derived from M&A compared to simply added value of the entities. Many describe it by expression "2 + 2 = 5"

Equations in areas like production, procurement, R&D, management insight, marketing, and distribution can bring about Synergy. However, in most of the real life cases, possibility of Synergy is sheer imagination of optimistic managers who engage in M&A activities with the aim to grow their companies quickly. In fact, some combinations can result in negative Synergy i.e. combined entity having lesser value than the sum of its parts. Blame is then put simply on poor post-merger integration process, cultural issues and costs involved. After all, the managers had spotted the brilliant opportunity for creating Synergy.

Why so much fuss about post merger integration issues and costs when all of the elements that affect success of post-merger integration should have been assessed in determining the fair value of the deal ?

Is it not important to consider the risks and challenges of the integration at the very beginning of the M&A process when companies are expected to deliver benefits of the synergy as soon as possible? Why many companies mistakenly keep apparent issues related to integration pending to be resolved post- merger.

Ideally, pre-merger process should involve review of core processes and IT systems in nitty-gritty. Experts who know how to design and implement changes to systems, processes and organization should be involved up front to determine cost & efforts required in bringing necessary changes.

Post-merger integration should be focused on value drivers than just cost functions. These drivers include core processes such as product design, sales & marketing and supply chain management. Revenue Assurance is also very crucial for achieving planned growth during the integration. Best Practice is to have clear plan for retaining business during the integration.

The focus should be value creation rather than mere integration. Necessary activities and task need to be re-aligned in a methodical way, but instead of bringing blind standardization and using a one size fits all approach, the integration process should be customized to suit complexities and peculiarity of the subject involved.

Risk Consulting professionals can add tremendous value by vouching reasonableness of estimates of potential Synergies, calculating the risks in achieving Synergies, and estimating costs of realizing Synergies. Objective due diligence review in above areas can prove very crucial in arriving at a reasonable valuation. Don't just know Risk or know Reward but know if Risk is worth the Reward.