by Ari Salonen
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Uncaptured Synergies from the Past Acquisitions
During the economic expansion over the past 10+ years, many of our clients embarked on an ambitious spree of add-on, tuck-in, and even transformational acquisitions. Many of them were focused on building their target pipelines and executing deals. Sometimes they had time only for superficial integrations of the acquired companies, resulting in a quilt of half-integrated companies.
Good Time to Revisit Past Integrations
We have seen many clients use this market downturn as an opportunity to complete the long-overdue integrations, capture synergies, and strengthen the business foundation for the next business upswing because:
- There is an urgent need to find cost-savings. Some saving sources may be non-obvious as subsidiary/acquired companies often look only within their four walls. Completing the integrations may open broader, cross-subsidiary or business unit opportunities for consolidation and reduction.
- The current business environment allows them to make tough post-merger integration actions, particularly headcount reductions, to capture cost synergies.
- A temporary lull in M&A activity allows these companies a moment to focus internally on improving their internal processes and to complete the integrations.
Focus on Synergies in the Business Infrastructure
Based on our discussions and observations, there are several areas to prioritize in capturing cost synergies in long-overdue integrations, in addition to any personnel redundancies:
- The acquired companies often have offices, other real estate, leases, etc. that can be consolidated, discontinued, or reduced.
- The acquisitions have often left the acquirer with many suboptimal legal structures (e.g., multiple subsidiaries in the same country). Maintaining an unnecessary legal entity can easily generate $1 million in annual administrative costs, for example. In addition, multiple and complex legal entities may hamper other streamlining and consolidation efforts.
- Vendor agreement rationalization is an often overlooked opportunity for cost synergies. Even if such rationalization was performed in the initial integration, new vendors, overlaps, and volume discount opportunities may have subsequently emerged.
Don’t Forget Revenue Synergies
One of our new clients had acquired a German company already six years ago; the deal thesis was built on a cross-selling opportunity. However, another deal came along, and such revenue synergies were never captured. Polling several other clients confirmed that the situation is rather common. Additional revenue is now more valuable than ever.
How Can Midaxo Help?
Midaxo offers a platform and best practice playbooks to digitalize corporate development from M&A and integrations to divestitures, splits, partnerships, corporate venture capital, and other complex transformational projects. Midaxo supports the long-overdue integration projects the following way, for example:
- If a deal was originally executed in Midaxo, the admin user can easily re-activate a project. All past plans, documents, notes, and actions are immediately available to aid the new team and the new effort.
- The acquirer’s institutional knowledge and competency in cost reductions or rationalization may have disappeared. Midaxo’s best practice playbooks for real estate and legal entity rationalizations, for example, enable a quick restart. They provide detailed guidance and templates even for an inexperienced team to run such synergy-capture efforts.
- Midaxo’s synergy calculator helps quickly estimate the magnitude of cost and revenue synergies even in such long-overdue integrations. During execution, Midaxo platform helps track and report the status and outcomes of such house-cleaning initiatives.