In M&A, a single word often shapes the entire rationale for a deal: synergy. Whether it’s reducing costs, increasing revenue, or unlocking potential, synergies are seen as the ideal outcome. But as anyone involved in deal-making knows, assumptions about synergies can be tempting — and risky — if not carefully evaluated. So, how can you identify the real ones? How do you avoid chasing illusions? In this article, we’ll walk you through a practical, structured approach to spotting and confirming synergies — before you sign the deal.
Start with a Clear Synergy Thesis
Every successful acquisition should begin with a clear understanding of why this particular target is sensible — not just financially, but also strategically. These are your predefined synergies: the value drivers you expect to achieve from the start. For example, if you’re acquiring a smaller competitor, you might already anticipate cost savings from overlapping functions. Or if you’re entering a new region, revenue synergies through market access could be part of your expectations. The key is to be realistic: are these synergies believable, and are they specific to this deal?
Don’t Forget the Usual Suspects
There are also some universal synergies worth looking for in every acquisition — regardless of the target: – Cost efficiencies such as shared services, bulk procurement, or office consolidation. – Revenue enhancements through cross-selling or upselling across the combined customer base. – Capability improvements, such as acquiring IP, talent, or technology. Consider these as your baseline checklist — standard items you should always think about, even if they don’t ultimately make the cut.
Where It Fits Like a Glove
Some of the strongest synergies occur when the target is perfectly aligned to complement your existing strengths. Think of it as a “hand-in-glove” fit. Perhaps your company has a powerful sales engine, and the target has a niche product that simply lacks the right distribution support. Or maybe you have scale, and they possess a process that could be implemented organisation-wide. These types of fit-for-purpose synergies can deliver meaningful value — quickly.
Reverse the Lens: Let the Target Empower You
Synergies are not always one-directional. Often, the true benefit is that the target has something you’ve been striving to develop for years — and haven’t yet succeeded in doing so. It might be a superior digital platform, a top-performing sales team, or a customer base you’ve found challenging to access. These “reverse” synergies — where the target unlocks your potential — are often overlooked but can be game-changing.
Measure What Matters (Before You Buy)
Now comes the difficult part: assigning figures to your synergy expectations. This is where optimism must be replaced with realism. Use benchmarks. Develop conservative base cases, then explore stretch scenarios. Incorporate probability weightings — not everything will turn out as planned. The more honest you are from the start, the less likely you are to overpay.
Validate During Due Diligence
Don’t wait until the integration stage to test your synergy assumptions. Incorporate them into your due diligence from the beginning.
This involves:
– Testing operational overlaps.
– Interviewing management about feasibility.
– Reviewing customer and product data to confirm cross-selling potential.
It’s acceptable if your assumptions develop over time—indeed, it’s expected. However, don’t hold on to the original synergy narrative if the data doesn’t back it up.
Post-Merger Integration: Where Value Is Won or Lost
Here’s the truth: most synergies don’t fail in the boardroom — they fail during execution. That’s why post-merger integration (PMI) planning must begin before you close the deal. Assign owners. Set timelines. Align teams. Ensure that culture, systems, and incentives all support the integration goals. You need a roadmap, not just a spreadsheet.
Track and Measure — or It Never Happened
Once the deal closes, stay focused. Monitoring synergies is essential.
Establish KPIs for each key synergy area — and track progress diligently. Schedule quarterly reviews. Celebrate successes, but also acknowledge setbacks. Accountability transforms potential into realised value.
Final Thought: Synergy Is a Discipline
Synergies can determine the success or failure of a deal. When done correctly, they drive value quickly. When done poorly, they destroy it. The best acquirers don’t see synergy as a bonus — they regard it as a discipline. They test, measure, validate, and implement it with rigour.
So next time you’re assessing a deal, don’t just ask what’s the price? Ask: What’s the real synergy story? And can we make it real?