When is It Necessary to Reassess Synergy Assumptions in Mergers?


    When is It Necessary to Reassess Synergy Assumptions in Mergers?

    In the complex dance of mergers and acquisitions, even the most seasoned M&A leaders sometimes face the unexpected need to recalibrate their synergy assumptions. An M&A manager kicks off our discussion with insights on closing deals and realigning profit goals. Alongside industry experts, we've gathered additional answers that culminate with the importance of ensuring alignment before major changes, providing a nuanced look at the challenges and adjustments inherent in M&A.

    • Close Deals and Realign Profit Goals
    • Post-Merger Integration Reveals Challenges
    • Reevaluate Synergies with Market Shifts
    • Address Financial Targets Missed Post-Merger
    • Respond to Stakeholder Concerns Promptly
    • Ensure Alignment Before Major Changes

    Close Deals and Realign Profit Goals

    Merger & Acquisition deals can infamously get dragged out over time, sometimes for valid reasons and sometimes for reasons out of anyone's control (due diligence, unexpected business risks, employee turnover within M&A teams, etc.). Among the number of goals to be achieved through an M&A deal, the main one is profitability, and as the deals get delayed, a company's overall profitability goals change, inevitably bringing you back to reassess the synergy assumptions and realign with the changes in the profitability objectives. So, all to say, close the deal as soon as a proper M&A process allows, and keep in mind, synergy assumptions and lead time to close a deal tend to dance together.

    Devansh ShrivastavaM&A Manager

    Post-Merger Integration Reveals Challenges

    Reassessing synergy assumptions is an essential step during the post-merger integration process because it allows for the evaluation of combined operational workflows and the identification of any discrepancies between expected and actual outcomes. Aligning departments and resources often reveals practical challenges that were not apparent in theoretical planning stages. Thorough reviews can identify areas where efficiencies are lower than anticipated, and adjustments to processes can be made.

    Engaging in this reassessment can ensure that the merged entity is on the right path to achieving the intended synergies. Companies should make a habit of such reviews to optimize their merger results consistently.

    Reevaluate Synergies with Market Shifts

    When there's a significant shift in the market or industry, it can render pre-merger synergy assumptions obsolete. Companies must then take a step back to re-evaluate their strategies in light of new information. Changes such as new regulations, evolving consumer preferences, or technological advancements often impact how effectively businesses can combine their strengths.

    This reassessment can aid in realigning the merged company with the current market dynamics to maintain a competitive edge. Stakeholders should remain vigilant and ready to reassess synergies when the industry landscape changes.

    Address Financial Targets Missed Post-Merger

    Synergy assumptions may need a second look if a company consistently misses its financial targets following a merger. Repeated shortfalls could indicate that the expected financial benefits of the merger were overestimated or are not being realized as planned. Revisiting the assumptions can lead to a better understanding of the economic dynamics at play and a more accurate forecast of future financial performance.

    Often, refinements to the business strategy or operational adjustments can put the company back on track. It's key for management to take proactive steps whenever financial goals are not met.

    Respond to Stakeholder Concerns Promptly

    Listening to feedback from key stakeholders is critical, and if they express concerns regarding the post-merger direction or outcomes, companies should reassess their synergy assumptions. Stakeholder concerns can be based on ground realities, customer feedback, or their deep understanding of the business, and tackling these apprehensions head-on can address potential issues before they escalate.

    Taking stakeholder worries seriously and conducting a thorough review of synergistic assumptions can prevent misalignment and reinforce trust. Management teams should actively seek and respond to such stakeholder feedback.

    Ensure Alignment Before Major Changes

    Prior to implementing major strategy or leadership changes, it's prudent for a company to reassess its synergy assumptions to ensure that new directions are built upon an accurate understanding of the combined strengths. Leadership transitions and strategic shifts can have profound effects on the company's trajectory, and synergy assumptions that do not align with the new course can undermine success.

    This reassessment allows for the identification of any gaps that may need to be addressed to facilitate a smooth transition and to fully capitalize on the potential benefits of the merger. Decision-makers should initiate these reassessments to ensure alignment before undertaking significant corporate changes.