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Six steps for finding those elusive post-merger synergies

When mergers are announced, glorious synergies are usually proclaimed as the reason for the deal. Since an inordinate number of mergers fail, either those synergies were never possible – the lead executives were deluding themselves – or they failed in implementation.

In a recent article, five BCG consultants say the key to nailing down synergies after a merger is a disciplined, pragmatic approach. You need to identify and validate the synergies, and then create detailed plans for achieving them as well as built-in accountabilities. Specifically, follow these six steps:

  1. Tightly link due diligence and post-merger integration: The due diligence team, under tight time pressures, will quickly formulate a set of assumptions about potential synergies that are broad-brush and often imprecise. Their work is done separately from management, which will have to deliver those results, and don’t take into account the operating models of the two separate companies and the newly combined entity, nor the differences or overlaps in customer bases. When integration occurs, management inevitably questions the proposed numbers from due diligence.

    “Recognizing these realities, successful companies ensure a well-co-ordinated handoff from the due diligence team to the integration planning team,” write the consultants – Danny Friedman, Axel Reinaud, Patrick Staudacher, Chris Barrett and Niamh Dawson. “Some even place M&A team members who were involved in the due diligence on the PMI [post-merger implementation] team assigned to develop the bottom-up estimates of the same numbers. Linking due diligence and PMI also allows for a greater degree of ownership and accountability on the part of line managers.”
     
  2. Make the most of clean teams: Many companies lose precious time because they fail to take full advantage of the clean team, the independent group that, with management’s guidance, collects and analyzes sensitive company data before the close. Clean teams can be granted access to a wide range of information, such as customer data, supplier data, individual product performance, R&D projects, and specific competitive initiatives.

    There are restrictions on sharing sensitive information, but the consultants note that in most cases, a clean team can share aggregated, sanitized results with management, allowing the company to achieve synergies faster and assess risks in areas where data cannot yet be legally shared between the companies. For synergy searches in particular, they point to procurement, R&D, and commercial opportunities.
     
  3. Establish stretch targets: Most leaders don’t fully appreciate the significance of setting stretch targets following the merger. “Using the due diligence numbers as a foundation, companies should focus on the high end of the assumptions. By employing creative estimation techniques, they can set more specific, and more aggressive, targets,” the consultants write.

    Use triangulation, which involves multiple data sources, including external information, industry peer data, data from the company’s previous integrations, and information from experts.
     
  4. Rapidly iterate to set targets: In setting targets, they recommend a process involving rapid, top-down setting of stretch targets with two rounds of bottom-up validation. That should allow greater degrees of accuracy and detail each time. "It allows companies to stretch to the most ambitious, yet still feasible, extent,” they write. The bottom-up estimates, which fills in the details, is done they say by those “with skin in the game” – people responsible for delivering the results.
     
  5. Pursue revenue synergies as diligently as cost synergies: Cost synergies get more attention because they are easier to account for. Revenue synergies are harder to track, and the consultants say leaders view those more as their day-to-day business management responsibility than as a distinct exercise.

    “In deals with revenue-synergy potential, management should establish a revenue baseline (the pre-merger figure) during the integration planning phase. Then, it should ask integration teams to identify revenue synergies as well as concrete initiatives for achieving them. It’s critical for sales leaders to develop initiatives and a sales process that will ensure that synergies are captured in a systematic and disciplined way – by, for example, training on new products and customers, sales lead generation, elimination of overlap in account assignments, and new incentive systems,” they stress.
     
  6. Track performance through the post-merger implementation phase: It’s vital to track results so you can adjust and improve. That also allows companies to communicate post-merger progress objectively to the market, a move that BCG found provides benefits.

How note-taking can improve your listening
CEO coach Sabina Nawaz says you can make better use of the time you spend in meetings by listening. In turn, to improve your listening, take notes.

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Since too often we are more focused when listening on arming ourselves for our own rebuttals and comments, she recommends a tool she calls Margin Notes.

"You may already take notes during meetings, but unless you're using them wisely to understand others and plan your response, you may still fall into the same trap of speaking before you think. Margin Notes allows you to think, process information, make connections between points of discussion and ask effective questions instead of blurting out the first thing that comes to mind," she writes in the Harvard Business Review.

Set your page with a wide margin and take notes when someone else is talking. In the main body of your notes, you will capture the key points of what the other person is saying.

In the margin, set out your ideas, judgments, rebuttals, and questions on each of the points you've written down. "By marking them to the side, you separate your own thoughts from what others say. It lets you set aside (literally) your own voice and gives you space to listen to others," she says. As an example, if your boss excitedly outlines ideas for a product launch, the margin note might be: "Ask about budget."

You don't have to share everything from your notes. When you speak, only bring up items that haven't already been addressed and are of the highest priority (and cross them off as you go). If you can't raise some issues during the meeting that are important to you, tag them for follow-up.

It's a simple process that keeps you focused on what you are hearing and streamlines your follow-up.

The seven common mistakes new managers make
Training consultant Jim Morris says in The Muse that new managers need to be alert to seven mistakes:

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  • Listening but not watching: People communicate their feelings with more than words, so pay attention.
     
  • Faking it to make it: Failing to ask for a clarification on something you don’t know because it will reveal you aren’t a seasoned veteran (which your colleagues know, so don’t try to hide it).
     
  • Micromanaging subordinates every step of the way in a process.
     
  • Losing sight of the big picture and failing to understand how your team’s work connects to the organizational strategy.
     
  • Saying “yes” to every project and then getting sucked into low-level tasks. Instead, if your boss asks you to do something that doesn’t seem a good fit, ask questions.
     
  • Only managing down and not spending sufficient time communicating with your own boss.
     
  • Treating everyone the same when people are unique. You must treat everyone fairly but avoid the rookie mistake of not understanding what matters to each individual on your team.

Quick hits

  • The biggest red flag in hiring can be the perfect candidate, says Blair Thomas, CEO of First American Merchant financing. You’re rarely going to find someone that fits the bill exactly so double down in checking out their resume, experience, and skills.
     
  • You need to sell strategy to your team. London Business School Professor Costas Markides says to win emotional commitment, you need to bring them through four stages: I know what the strategy is; I understand what you want me to do and why it’s important; I trust this is possible and see how we’ll do it; and, finally, I will do it.
     
  • When a crisis occurs at work, grade it on a scale of one to 10 based on whether you have the assets on hand to solve the problem, says Tom Reilly, who has spent three decades running movie sets and facing crises on a daily – if not hourly – basis.
     
  • If you find yourself becoming short-tempered at the end of a week or after a hectic stretch of travel, Guy Beaudin, senior partner at RHR International, says you have to pay attention to un-executive-like topics such as nutrition, exercise, movement through the day and sleep, to boost energy capacity and resilience.
     
  • Since a charge port for your mobile device is not always available, consider a phone power bank such as the Anker Astro E1 or Kmashi Portable Power Bank.
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About the Author
Management columnist

Harvey Schachter is a Kingston, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online column, Power Points. More

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