Why do companies struggle with revenue synergies?
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Many companies strategically acquire other companies with the primary intent of increasing their revenue. The belief is that the acquiring company should be able to cross-sell to customers of acquired company and vice-versa. And yet, once the company is acquired and the deal is closed, the leadership teams seem to run out of ideas on how to create a revenue generation plan of combined businesses.
Hi Anirvan,
Thanks for the prompt.
Typically revenue synergies are easiest to obtain when a large multinational corporation is acquiring a much smaller company where they can expand the reach and utilize existing channels to sell more of the acquired solution. For companies that are similar in size and the strategy involves around providing full stack “solutions” instead of “products”, revenue synergies can be planned but in reality are much tougher to execute on. I think revenue synergy planning is an extremely important area to focus on during the due diligence phase as performance in this area can make or break the performance of the overall acquisition (cost synergies are much more well-known).
Interested to hear comments/thoughts from others.
Craig
I agree on the attention to be paid during the Due Diligence Phase about the actual revenue synergy potential. When reading the DD report, at times what I capture from it is the aspirational revenue synergies wanted by the business and nothing really grounded.
Anirvan,
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I see that this is an older post, but still very relevant.
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From my experience, the primary reasons for this are:- Lack of pre-planning and strategy
- Lack of communication between parent teams and acquired teams
- Fear of loss
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Lack of planning is probably the biggest reason. You should have a very good understanding of your revenue synergy during the due diligence process. If you get to integration and the question of, “So how are we going to generate revenue from this new product?” comes up, that is a very bad sign.
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Lack of communcation spans a broad range of areas. For a technology company like ours, the simplest way to understand it is the product roadmap. If you perform 3 acquisitions and now have 4 product roadmaps, the confusion sets in. It will seem like everything and nothing must be worked on all at once.
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Fear of loss can be a big one if there is lack of planning. The acquired company often has a fow of revenue and the mindset is, “Let’s not break that!”. However, it might be necessary to make significant changes in order to combine products/departments/roadmaps in a synergistic way to amplify the potential revenue.
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