Below are some illustrative topics to get your arms around upfront: Management teams should instead make a brief announcement to stakeholders while they take a few weeks to revisit assumptions from diligence and re-run the analysis with actual data compared to the limited data available in diligence.Įach deal is different, but we’ve found a P&L view of the business is the optimal way to organize the effort. But charging ahead before being able to clearly articulate to the team where and when the value will come from-and how much is expected-can cause at least as much churn. The temptation is high to get started right away with integration: New leaders are eager to prove themselves, and there’s ample case-study evidence that a lack of communication about the future drives more customer and employee attrition compared with being more proactive.
To ensure better accountability and smarter execution in this fast-changing environment, consider a unique value management office (VMO) approach to post-merger integration-one which reprioritizes opportunities for synergy and builds cross-functional teams to seize them.
SYNERGY ONE LENDING GLASSDOOR FULL
With these two pain points in full effect, it’s no wonder that deals often fail to live up to their hype. Overcoming headwinds using the value management office
In other words, they’ve been taking a more VMO approach without knowing it.
But in our experience, these teams rely on exceptional leaders who emphasize collaboration and have a top-down view of the end-to-end value chain-the entire set of processes through which a company delivers a final product. Many client teams deliver synergy despite using an outdated M&A model. The IMO model, which organizes the integration teams around departmental designations (e.g., finance, HR, ops, sales), may be ideal for tackling must-dos within departments such as purchase accounting or legal entity consolidation, but it fails to provide the holistic perspective needed for cross-departmental collaboration-and it’s these cross-functional teams that typically drive the real value. Historically easy money has also provided minimal incentive to rethink outdated approaches. Buyers will want to have assurances that their estimates will be realized. Money isn’t quite as cheap, and lenders will likely turn less confident about synergy estimates. Diligence was pushed largely into the virtual arena, further limiting buyers’ ability to perform the unmeasurable yet critical human element of the process.īut now the oracles are foretelling a graver picture: The Fed has already communicated the highest single rate hike since 1994. This was already observable in 2020, but the COVID-19 pandemic exacerbated the situation further. One reason? Relatively cheap financing and covenant-lite terms created a seller’s market in which buyers likely had to pad their bids in order to stand out. Synergy estimates have been getting rosier over the last decade. Where inaccurate synergy estimates stem from The Future of Diligence in Private EquityĬonsidering the macroeconomic conditions, it’s our belief that extracting synergy from acquisitions will be even more critical as the tailwinds of the past decade begin to wane. Portfolio Value Creation for Private Equity