Senior partners Andy West and Jeff Rudnicki from McKinsey's Synergy Lab share surprising insights on capturing synergies in M&A deals, including the importance of protecting the base business, setting specific synergy targets, moving quickly to capture synergies, managing cultural differences during transactions, and the impact of announcing synergies on total returns and deal performance.
A specialized team focused solely on synergies is crucial for successful M&A deals.
Understanding and effectively managing cultural differences is essential for capturing synergies in M&A transactions.
Deep dives
Understanding the Lack of Insight into Value Creation in M&A
The research on deal synergies aims to understand the reasons behind the lack of insight and value creation in M&A transactions. The study debunked myths about deal failure rates and poor returns. It highlighted the challenge of translating the concept of synergy into measurable outcomes and identified the need for a specialized team focused solely on synergies.
Common Concerns and Challenges in Achieving Synergies
Clients often express concerns about potential distractions from a large deal and the balance between involving people in deep diligence and the need to maintain focus on the core business. The transition to integration planning poses challenges in terms of including key stakeholders without disrupting the business. The research emphasizes the importance of protecting the base business momentum and carefully considering the investments, management time, and activities required to avoid destroying value.
Factors to Consider when Assessing Synergy Potential
The research identifies three main factors to consider when assessing synergy potential: protecting the base business, combining synergies from bringing two organizations together and eliminating redundancy, and pursuing transformational opportunities. The study emphasizes the importance of balancing these factors and considering cost, capital, and revenue levers. While cost and capital synergies are more familiar and calculable, revenue synergies require longer timelines, investment, and tracking, and should not be overlooked.
Deal Archetypes and the Role of Culture
Different deal archetypes present different opportunities and challenges for synergies. Industry consolidation deals often focus on cost synergies, while corporate transformation deals require a shift in synergy approach and strategic questions about capital allocation. Culture plays a critical role in realizing synergies, especially regarding onboarding, company alignment, and target preservation. Understanding the relevance of cultural differences and managing them effectively is essential for successful synergy capture.
Read more > Listen to the podcast (duration: 35:07) > Senior partner Andy West and partner Jeff Rudnicki, two of McKinsey’s most seasoned M&A experts, discuss what they have learned from their recent work with clients of the Synergy Lab, a new initiative aimed at understanding how to most effectively capture synergies in M&A deals. In their conversation with communications director Sean Brown, they share seven insights, some of which surprised even them.