Value Drivers and Synergies
The deal price for any acquisition will be different for every buyer. Each buyer will obtain different value from a deal dependant on how they integrate the acquired company into their existing business.
The approach of extracting value from the deal will be determined by the the Strategic Rationale - why you have decided to make an acquisition. This in turn will form the basis for the Value Drivers. The Value Drivers are the fundamental ways in which this value will be achieve, are are themselves underpinned by detailed Synergy opportunities.
Value Driver and Synergy Definition
Value Drivers will normally take the form of opportunities for growing the acquired business faster than the current owner, or by reducing the cost-base. In addition, the buyer would expect the acquired business to continue to perform to the same level as before acquisition.
RitchieHogg can support a buyer in the definition of the value drivers and synergy opportunities. We draw on out deal experience to build hypotheses on where value may be obtained, and use the findings from Due Diligence to validate or reject these opportunities.
Each Synergy opportunity is backed up by a simple business case at this stage, using a financial format which inputs into the deal valuation. Further back-up detail us provided in a Synergy Definition Document, which describes the benefits, costs to achieve, assumptions, risks and accountability for delivery.
As resources are always limited, it is key to prioritise the synergies based on value, cost and criticality and difficulty to implement. This initial prioritisation will determine the value that the buyer can be price into their offer, as well as allowing an Integration budget to be prepared.
Deal Value Realisation
Following closure of the deal, it is critical that the identified synergies are validated in a post-closure review. At this stage, the buyer has taken ownership of the company, so all assumptions can be validated.
Typically, up to 50% of planned synergies will turn out to be unachievable, so having a hopper of back-up options from the prioritisation process enables the value expectations to be maintained.
In many cases the delivery of these synergies will take a back-seat to the practicalities of running the business. Managers within the business may not have the additional time required to deliver these benefits.
Strong project management and accountability is key to ensuring that these opportunities are followed through to deliver the value at the time expected. RitchieHogg can provide the programme leadership to ensure this happens, and embed additional subject matter expert support to execute against these plans where needed.
If you do not understand the Value drivers for your deal, it will fail. RitchieHogg has experience is defining these and synergies across a wide spectrum of industries. Arrange an initial discussion to find out more: