How to unlock synergy value with your buyers

In Synergies 101 we explained what synergies are – the benefits when companies combine post-deal, like cross-selling to each other's customers or merging back office teams. We also gave some examples of common revenue and cost synergies.

Check it out if you haven't already.

But there's a major problem with synergies...

Buyers often don't believe that they are genuine, likely to be achieved or as valuable as you say they are. Or at least they pretend so as a negotiation tool.

Some M&A teams and CFOs can be hardcore 'synergy cynics'. A famous McKinsey survey found that 60% of synergy value never materialises post deal, and that stat is now well-known in the industry.

So you have your work cut out to prove that there are real and material synergies in your deal. That can create a gap between what you believe is possible and what they will put in their financial model, causing a gap in valuation that’s hard to close.

For synergies to actually get you a higher price, you will need to work collaboratively with your buyers to find, evaluate and quantify them.

In this piece, we'll give you a playbook for how to do exactly that.

Start before the offers are in

You need the buyer to understand and value the synergies before they have made their first offer.

Often, these synergies only get discovered later, after you have accepted a bid and signed an LOI. The buyer won't retrospectively increase their bid, so that value will just stay with them, and you won't see it reflected in the price.

So you want to run this playbook below in the early stages of the deal, where you are getting to know buyers and they are working out whether to bid and at what price.

They have your Confidential Information Memorandum, financial forecasts and some preliminary due diligence documents. They are reviewing all of that data and modelling what the future performance might be in different scenarios.

It's at this stage that you want to get these synergies locked down.

Make it a team game

First up, you should simply say to the buyer:

I would like to work with your team to explore how we might combine our businesses after an acquisition, and what value that could create.

It really helps if you have built a good relationship with them over time, there's some trust and you know some execs in the business. You may have already done some of this planning or strategy work with them before the sale process kicked off.

But this is possible even if you approach them cold in the sale process.

In either case, you should frame this as a benefit for them. It will help them find value to justify making a successful bid, and give them certainty on the post-acquisition integration process.

(See the section below for some ideas if they want to keep you at arms length and not enter these kinds of conversations.)

The Playbook

So let's get into it. We break this into three parts:

1️⃣ Find and define the synergies
2️⃣ Present your ideas
3️⃣ Value and build the evidence

1️⃣ Find and define the synergies

You need to do some work upfront.

You know your business inside out, and hopefully you know a little about their operations, strategy, areas of focus and challenges.

Armed with this, you can go back to Synergies 101 – run through the list of examples and think about which might apply in your deal.

There's a fancy word for this process – a "Synergy Analysis". But in simple terms, you are just thinking through areas where you could collaborate with the buyer to increase sales or save costs.

You'll then have a shortlist of potential synergy ideas to take forward.

If you don't have any great ideas, it may be that this isn't a very synergistic buyer. That's not a disaster per se (especially if they still have a strong reason to buy your business) but it could limit the amount of 'strategic premium' they are likely to pay. Maybe you should cast the net wider to find alternative buyers who do have some real premiums?

2️⃣ Present your ideas

You can then write your ideas up, and present them to the buyer.

The narrative here is that you've had a think about collaboration, and have some exciting ideas to share as conversation starters.

Add some detail to bring it to life. You don't want this to look like strategy jargon, but real-life projects that get people excited. So build a dummy landing page for how to you might co-market products, or a press release to go out to customers, or mock up how the products could integrate.

Most sellers won't bother to do this – if you do, you will stand out.

3️⃣ Value and build the evidence

At this point, you should have their attention.

You now need to work out which your ideas actually get them excited and match with their internal plans.

So together, you need to flesh these out, build an evidence base that supports how these synergy are credible and attempt to value their impact.

Through this process, you want the synergies to look both achievable (carefully thought-out, with a plan for how to implement) and with a large potential impact.

This is where you need their input - you can't do all of this from outside of the business as you will just be guessing on their strategy and without some key inputs.

This might be the point at which they tell you to keep your distance. They certainly won't want to share too much confidential information with you.

But if you pitch this right, and have them excited enough, you will hopefully be able to reach out to some of their execs and operational team to share ideas, and ideally a few brainstorming sessions in the diary too.

This networking through their organisation has a second benefit – a wider network of supporters or advocates for the deal across their business. That can really help to push a deal through.

You are then working together to build out this evidence base.

The specific outputs will depend on the type of synergy, but some examples are:

• A list of your customers who are not customers of the buyer, but within their target market. These are opportunities to cross-sell their product. You can also take a best guess on the value of those deals. "From our customer base, we can build a deal pipeline of up to £x..."
• An estimate of how many new customers you could get by marketing to their client list. "If 20% of your customers can be cross-sold our product, that would deliver [x] new clients and a £x uplift in revenue."
• A list of your suppliers where you can reduce spend after the deal. "We have identified £x of cost savings."
• A list of your team members who are not needed after the deal if you can reduce headcount in overlapping roles. "We can save £x by reducing headcount by x in the first year after the deal."

If appropriate, you can also support this with an high-level implementation plan or technical roadmap. Again, very few buyers take the initiative to do this.

What if no access?

It may be that don't want to engage with you on this. That's usually that they want to keep their strategy and data confidential.

You can try to explain that you only need non-sensitive information, and push up the chain to someone more senior.

This is another area where having multiple bidders is your trump card. You can simply explain, non-confrontationally, that your working with others and finding a lot of value, so they will be left behind.

If that doesn't work, you can still run the above exercise using some public information and use some sensible estimates, and give ranges.

For example, "you have stated that you have 650 enterprise customers, if we can convert 10% of them to our product that would deliver £x of additional EBITDA."

It's not as powerful, but if you show your working and make some sensible estimates it can still have some value.

The impact on valuation

Now the buyer has the evidence base they need to value the synergies.

This is where your hard work really pays off.

The buyer will run a financial modelling exercise to understand different growth scenarios and work out the financial performance in each. This gives them a framework for what they could pay to acquire your business, using different valuation multiples.

From the work you've done, they have a list of potential synergies, with an idea of the financial impact for each.

This impact could be an uplift in sales, or a reduction in costs, both flowing through to improved EBITDA in your business, theirs, or both. They usually then put a percentage likelihood on each of these to get to an aggregate expectation-adjusted value for the synergies.

Unfortunately, you won't get to see this work. They won't share their modeling with you, so it will remain a black box.

But you have done enough to convince them that there are some real, exciting, and valuable synergies.

Conclusion

Few business owners grasp the impact of synergies, and even fewer are proactive in working with buyers to find and value them.

With this playbook, you can position your business as a more attractive and valuable acquisition target – getting your a better price and setting yourself up for smooth post-deal collaboration.

So take the initiative, build strong relationships, and put in the work to show why your business is worth every penny.