Introduction
In today’s competitive deal environment, you cannot afford to dismiss cost synergies. Developing a robust sense of the potential savings achievable through economies of scale and the elimination of redundancies after a merger is essential to both a successful deal process and the realization of the total potential value following deal close.
Compared to revenue synergies, cost synergies are often more straightforward to identify, quantify, and track; and delivery is largely within the control of the organization. It’s not surprising, then, that companies are 10 times more likely to announce cost synergy targets than revenue synergy targets.1
In our experience, balancing top-down targets informed by the due diligence process and industry benchmarks, with a bottom-up investigative approach across a broad set of cost synergy categories, is a critical first step toward capturing savings opportunities.
In this edition of L.E.K. Consulting’s Executive Insights, we cover how to think about cost synergy potential and timing as well as the categories an organization can consider to ensure no stone is left unturned in the search for cost savings opportunities.
Typical cost synergies by industry
Many factors impact the magnitude of cost synergies. Industry plays a significant role, as shown in the chart below (see Figure 1), with healthcare and TMT (technology, media and telecommunications) seeing larger anticipated savings than energy or industrials.The importance of major cost synergy categories will also be different by industry and the nature of a particular deal.
To achieve maximum value, organizations should understand the full range of opportunities and then narrow the focus to effectively prioritize post-merger synergy planning and execution.