Synergies are about people not assets
There is a general misconception that some M&A deals are people-based and others are asset-based. That’s not true…when it comes to post-deal, all M&A deal synergies result from people.
Even for the most asset intensive business it’s the significant knowledge and expertise in the staff on how to exploit the assets that delivers the synergy uplift. That’s why you’ll find such a focus on ‘people’ and ‘communications’ in any well run integration programme. The focus is on people to deliver more value from the assets: decision making, planning, management, systems, process redesign, knowledge, relationships. That’s true if you consider tangible assets, such as equipment, property and buildings, or intangible assets, such as brand, IP, client relationships and systems. In both cases you’re changing people…either what they do or how they do it.
Whilst this might sound like sensible advice for the post-deal delivery, it also goes right to the heart of the pre-deal strategy and valuation.
Valuations depend on forecast growth and synergy assumptions, and valuations dictate if you make the short list and go on to win the auction. We tend to find that it’s less about identification of the opportunities, and more about how confident the bidder is that they can be achieved. The risk adjustment of each opportunity is often a deciding factor in the value of each bid. That risk adjustment depends on your confidence that the combined teams will have the capacity and capability to use the assets in better ways.
That’s why questions about the people in both organisations shouldn’t be limited to the post-deal thinking. Explicitly evaluating the capacity, capability and compatibility of the combined teams pre-deal will help you bid the right price and win the auction.