M&A Lessons Learned

Supply chain management is the key to realizing merger and acquisition synergy savings


Using a synergy prioritization scheme to consistently balance the various ROI components with business priorities is a useful approach. An ROI-based prioritization may be approximated by using a set of defined criteria that encompass the major elements of an ROI calculation. For example:

  • Estimated Savings — the most direct measure of synergy value and generally given the most weight of all criteria
  • Spend — often used as a proxy for savings if savings cannot be predicted with an acceptable confidence interval
  • Speed of Savings Capture — the payback period or time required for synergies to be realized as a result of the project
  • Resources Required — the full time equivalents (FTE) personnel or other investments required to execute the synergy initiative
  • Business Impact — importance placed by the business on meeting the completion date for the project.
  • Stakeholder Buy-in — degree to which business stakeholders will advocate for, support and provide sufficient resources to execute the project successfully

This approach will yield a prioritized list of synergy capture initiatives ordinally ranked relative to estimated ROI (See Image 5.

Step 3: Develop Resource and Synergy Capture Plan

In addition to identifying synergy savings, it is important to project an estimation of when those savings will be realized and booked. The more qualified resources that can be brought to bear, the higher the number of projects that can be worked in parallel and the more synergy realization may be accelerated.

Resource planning and scheduling requires assessing current resources, assigning those resources to the prioritized projects based on qualifications and skill sets, determining the appropriate team mix for each project, estimating the time it will take for the resources to complete the projects and then re-assigning resources as they become available. This will produce waves of completed synergy projects and corresponding synergy realization over time.

A synergy capture steering committee and sub-teams for each of the operational functions of the business, e.g., IT, finance, HR, operations, with weekly meetings is an effective way to assure open and clear lines of communication, suggests Holly. "It is important that real issues can be escalated and resolved quickly."

In order to accurately capture and reflect the benefits of all this investment and activity, a savings tracking system is needed to identify the expected and actual synergies that will be captured over time and to provide leadership with performance reports, including forecasts, accomplishments and variance analysis. It is important that the definition and methodology used to calculate synergy savings be thoroughly understood by everyone reporting those savings. If there is variation between individuals on this calculation, then the numbers across projects cannot be added together and savings reporting will be inaccurate.

Lesson Learned — Inconsistencies in savings definition can lead to an ineffective savings tracking mechanism. Detailed synergy savings definitions need to be discussed, approved and applied consistently. It is often helpful to establish a centralized savings or financial modeling "center of excellence" that can be called upon by staff for assistance in developing savings models and documenting savings. The savings tracking system should be user friendly to encourage staff to document their savings comprehensively and in a timely manner. Synergy efforts may be wasted if the savings are never officially documented and booked.

Step 4: Execute the Synergy Capture Program

Running the synergy capture workplan as a distinct and comprehensive program with an established governance structure to monitor progress and make changes as necessary will help ensure success. With all of the activities, competing priorities, cultural conflicts and confusion that accompany many mergers and acquisitions, it is easy to lose management focus and momentum in execution.

Part of a successful synergy capture plan is having dedicated resources — people who are not trying deliver synergies along with their other operational responsibilities. "It is important to clear the plates of a few individuals to drive the process. They are able to get the job done quicker and have greater insight as they are immersed in the process and not dealing with it part-time," adds Holly.

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