Achieving Synergies in Business Acquisitions
Many acquisition targets today are sought after and evaluated based on expected “synergies”. This is the buzzword used in the mergers and acquisitions market when analysing the expected overall increase in profit once a new business is acquired and incorporated into a pre-existing organisation.
The difficulty is, actually achieving those synergies is a difficult task compared to identifying them on paper beforehand. Significant amounts of academic research have shown that anticipated benefits from an acquisition are rarely realised to their full potential. The key to a successful acquisition is identifying what synergies can be realistically attained following completion and what will be required to achieve them in the integration period.
Types of Synergies
It is useful to think about the common types of synergies that prospective acquirers look to achieve. Some examples are:
- Merging IT systems and losing the cost of unnecessary software.
- Reducing administrative overheads by decreasing the headcount in central functions.
- Adding complimentary products or services that you do not currently provide but would fit with your existing business.
- Gaining immediate access to a new market that was previously unreachable.
As your solicitors, we focus on the legal aspects of the proposed target in our due diligence investigation. You can read about the importance of the due diligence process in our recent blog.
In addition to identifying risks that need to be addressed in the transaction, legal due diligence provides a useful opportunity to dig deeper into the anticipated synergies. The expected benefits from a transaction are usually identified before the legal stage, quite often following a review of the target’s financial data. However, there needs to be a practical understanding of the position to make the expected numbers become a reality.
If you have identified opportunities to attain commercial benefits post-completion, it is important you discuss this specifically with your legal team when agreeing the parameters of the legal due diligence investigation. By explaining what you hope to achieve post-completion, it can be that legal due diligence may be used to help get a more in-depth understanding of those specific aspects of the target business. This could be employment terms for a key section of the workforce; the terms of the contracts for IT software; or the detailed specifics of the agreements made with suppliers.
Whilst the legal team will report on the legal risks identified in the result of the due diligence enquiries, you can also use the information received from the seller(s) to see what integration hurdles you may face post-completion. Depending on the nature of the hurdle identified, it may be something we are able to offer a solution to, as your legal advisors.
Identifying and dealing with these hurdles will help ensure the acquisition is the success it should be.
To discuss any plans you may have for acquisitions and how we may assist, please email or call our Corporate team on 0113 207 0000.