Mergers and acquisitions (M&A) are a tried and tested way for companies to grow and expand their operations. Combining the strengths of different enterprises, a new entity is created with an aim of creating new products or services that are more profitable and successful than the earlier lineup with separate enterprises.
Capturing synergy means that companies are able to identify and realize the benefits of combining two or more organizations through mergers and acquisition.
Synergy capture is a key element of any M&A transaction, but the areas need to be identified beforehand in which the newly formed entity would work and act as a beneficial collaboration in terms of financial, operational and strategic aspects for both the companies. It’s not just cost savings or revenue growth, but the ability to expand to newer markets and access to new technologies for an enhanced product lineup are where M&A synergy acts as an effective tool for expansion.
Mergers and acquisitions are however not without challenges. To realize potential synergies, enterprises need to make data-driven, informed decisions.
Successful mergers and acquisitions utilize the synergies that are unique to each of the involved enterprise so that maximum value can be achieved with the transaction. With constant upheaval in procurement and supply chain globally, the lion’s share of a company’s costs comes from external spend, all the more reason why supply chain and procurement will continue to be a significant source of M&A synergy opportunities.
This information guide covers telecom M&A synergy capture, high tech M&A synergy capture, software industry M&A synergy capture, media M&A synergy capture, healthcare M&A synergy capture, and life sciences M&A synergy capture.
Telecom M&A Synergy Capture
The telecom industry constantly faces new challenges in terms of technology as well as userbase. Managing legacy wireline and wireless spend while transitioning to new technology environments, from 3G to 4G to 5G and now toward 6G or sixth generation of wireless technology, while maintaining backward compatibility for older devices; optimizing operating margins; acquiring strategic procurement support for M&A; and solving supply chain and procurement challenges that come with mergers and acquisitions in the telecom industry are the starting points. In this environment, telecommunications companies need to adapt their strategies to constant changes and challenges.
Volatility reigns supreme in the telecom industry. Therefore, the changing business model and consumption patterns in the telecom industry require speed and innovation to drive growth or a least sustain profit margins in the long term. Changes that earlier took a decade to come into effect are now happening every now and then, with innovations coming in bits and packets in between major ones that come once in a while. The increased and abrupt pace of change requires organizations to revisit their sourcing strategies and focus on cost-driven arrangements, even if it means mergers and acquisitions.
Telecom M&A synergy capture therefore becomes an important tool to create value in the fast-paced telecom industry, where user base sees constant fluctuations and technologies become redundant every passing year. Telecom companies must therefore identify the value creation opportunities with utmost caution, develop a futureproof plan to capture the synergy — so that the new entity is perfectly positioned to take advantage of the strengths of both enterprises. This maximizes the value created by the M&A and ensures long-term profitability.
Capturing the synergy of a telecom M&A requires more than just an understating of the two separate enterprises that pan to merge. The objective of the M&A needs to be analyzed against the individual strengths, weaknesses, opportunities and threats, with a focus on the areas of value creation that the new entity would bring onboard in terms of strategic and financial implications.
The focus for telecom mergers and acquisitions should be on network optimization, where the combined entity would help create a better and efficient network for better coverage and higher speeds. The immediate result would be improved customer satisfaction and revenue growth, but the potential opportunity that comes from such mergers and acquisitions is overall growth by means of a larger customer base, better and larger infrastructure, and increased resources — opening up opportunities to create new products, getting access to newer markets, and so on.
High Tech M&A Synergy Capture
The high-tech industry has a number of different areas where M&A synergy capture can prove to be beneficial. Given the shorter product lifecycles, consumer electronics companies face more complexity in product and service, shorter product lifecycles and proliferation and more types of spares. The search for cost-competitive suppliers is a constant, given falling margins.
In the high-tech industry, including telecom and networking equipment market, IP protection when selecting the right partner is always a cause for concern. This often leads to sub-optimal supplier choices, irrespective of the investments in infrastructure, thereby reducing resilience in supply chains. The issue is more pronounced for consumer electronic durables makers that have to be always on their toes balancing two supply chains simultaneously — local suppliers for bulky components and sub-assemblies in low-cost geographies for less bulky parts.
Apart from the technological innovations and expansion of the product lineup from a larger pool of resources, high-tech M&A synergy capture needs to put into perspective an operating model that can meet customer demands as well as supplier requirements for greater and long-term profitability for the new telecom entity.
The one area that could pose a worry for high-tech companies is the risk of integration failure while capturing synergies, which could very well be a result of conflicting technology, incompatible strategies, incompatible platforms, or even contrasting corporate cultures. High-tech synergy capture therefore requires a structured approach and a well-defined change management strategy throughout the transition to a new entity post the merger. Capturing synergy in the high-tech industry is a significant driver to create a value chain that can enable companies to stay profitable and ahead of the competition.
Software Industry M&A Synergy Capture
The software industry has been going through a radical change and most of the enterprises are currently busy repositioning their mission toward good corporate citizenship and social responsibility — and this includes sustainability, mitigating the impact of climate change in deeds, as well as making solid strides toward employee wellness.
In the middle of all the supply chain chaos and keeping up with good governance and ESG goals, technology companies must also keep up with competitors and at the same time safeguard a huge amount of data, moderate user-generated content on social platforms, keep up with changing regulations, and still maintain or increase its growth rate. As a result, software industry M&A synergy capture follows a slightly different trajectory because of its dynamic, fast evolving nature.
Combining two or more enterprises makes it possible to reduce production costs as well as distribution of products and services. The combined entity can therefore achieve significant savings. Software industry synergy capture could also come from complementary solutions that can actually help the new entity to merge two software products or offerings for a comprehensive package that can help capture more users.
Another important area of synergy capture in the software industry is the ability to create new products and services. By combining two or more businesses, it is possible to access a larger pool of resources and create new types of products and services that may not have been feasible before. This can lead to greater customer satisfaction and increased revenue for the combined business.
Similar to other challenges faced in the technology domain, software companies need to continually enhance their domain expertise, so that they can maintain their competitive position. One such challenge could be integration. For example, when Facebook bought Instagram and even WhatsApp, the competition was at the nascent stage, but the social media giant nevertheless went ahead with the M&A. The big question was how the company would integrate their messaging systems, but it eventually worked out a solution and launched cross-platform messaging for both the platforms it purchased.
Media M&A Synergy Capture
The media industry has massively evolved from what it was a decade ago. The dynamics have changed completely. Viewership is everything at the end of a day; and for that, the competition to attract viewer attention is the ultimate fight for survival in the industry. The landscape has completely changed, with traditional broadcast channels going into the background and digital content streamers taking up the biggest slice. What this means for traditional broadcasters is that they need to rethink and create completely new strategies to remodel their content pipeline and distribution models, including advertising revenue.
There’s so much user-generated content through smartphones that it’s majorly driving media M&A synergy capture, rather than just competing media companies with wafer-thin profit margins. It’s therefore a necessity to keep pace with the changes and take those into account to capture synergy – so that an M&A can actually accelerate innovation while ensuring costs scale efficiently.
Mergers and acquisitions in the media industry means combining different forms of media such as print, broadcast, and digital to create better and comprehensive media offerings.
M&A synergy capture ensures there are a number of different areas that can be addressed, especially leveraging economies of scale, reducing costs associated with production and distribution of products and services. This can result in significant savings for the combined entity.
Another important area of synergy capture in the media industry is the ability to create additional content. The access to a larger pool of resources can enable the new entity to create new genre of content that may not have existed before, leading to greater viewership and increased revenue. Combining different formats of content can help capture new audiences and increase in engagement across channels, helping the new entity capture greater market share.
Consolidation of operations lead to an interconnected organizational culture, leading to improved employee engagement and better business outcomes.
Healthcare M&A Synergy Capture
The life sciences industry is constantly under pressure. Raw materials prices have been steadily rising whereas operating margins have been swiftly decreasing. The aftereffects are cascading, translating into higher cost of goods sold (COGS). R&D costs have also significantly shot up, along with growing complexities due to regulatory challenges and global supply chain disruptions, leading to the end consumer paying more for the growing costs.
Healthcare mergers and acquisitions synergy capture are the only way forward for the industry to combine different areas of expertise — such as drug development, medical devices, digital health, and healthcare services — for a comprehensive ecosystem of products and services.
Healthcare and life sciences M&A synergy capture helps companies combine R&D capabilities in the domain, helping new entities expand their product portfolio and offer comprehensive solutions to the general population. With M&A serving as a critical growth factor in this highly competitive market, most life sciences enterprises can ensure both short-term and long-term growth by going for bolt-on acquisitions of specialty companies to aim for geographic expansion.
Another way to ensure healthcare M&A synergy capture is by leveraging economies of scale and improving operational efficiency. Common functions such as human resources, finance, and IT can be merged when companies with similar capabilities merge for geographical expansion.
Another important area of synergy capture in the healthcare industry is the ability to access new markets and customers. By combining two or more businesses, it is possible to expand into new markets, combine synergies, and create new drugs and diagnostic services focused research and development activities. Another lucrative avenue would be to invest more in digital health, which can lead to increased revenue and long-term success for the combined business.
Pharma M&A Synergy Capture
There may be some overlap in the types of synergies that can be captured in pharma and healthcare M&A, and therefore the specific approaches and strategies used are likely to differ due to the unique characteristics and complexities of each industry.
Pharmaceutical M&A or pharma mergers and acquisitions involves companies that specialize in the development, manufacture, and sale of pharmaceutical products. Pharma M&A synergy capture usually involves combining the research and development capabilities of the merging companies, enabling leveraging the combined manufacturing and distribution networks. At the same time, the combined entity can eliminate redundancies in administrative and support functions.
Pharmaceutical mergers and acquisitions happen when drugs manufacturing companies seek to expand their market share, product portfolio, and technological capabilities. With increasing disease burden on the world, the potential for synergy capture becomes a significant driver behind these deals, which refers to the creation of additional value beyond the sum of the individual parts of the merged entities.
By working together, companies can increase the speed and success rate of drug development, leading to faster time-to-market and increased revenue potential. And the cost savings too can be substantial as pharmaceutical companies often have high fixed costs associated with manufacturing and R&D.
Although technical expertise is vital in conducting due diligence and identifying key areas of synergy for optimal value creation, a new entity born out of two or more companies can be a powerful tool for companies looking to achieve pharma M&A synergy capture and drive sustained growth in the industry.
Capturing M&A synergy in diverse verticals can be a challenging task, but definitely a powerful driver for value creation and business expansion for companies looking to boost presence and growth. Successful capture of synergy requires careful planning, communication at all levels, collaboration so that a comprehensive integration plan be developed at operational, strategic and financial levels.