The Integration Management Office should also help to identify and categorize expenses, as well as work with integration teams to estimate a savings percentage for each vendor. It’s also probably a good idea to let the financial experts decide how to account for things like fixed assets and accrued expenses during and following a merger. The result allows the deal team to move any redundant systems or vendors into the savings estimates and re-deploy talent into new areas for new hire avoidance in high-growth situations. West Monroe often walks clients through the development of Target Operating Models to apply the appropriate people, processes, and technology to the future combined organization. By expanding the deal team to include key lines of business or function owners, bank leaders will be able to better understand the data and intricacies of the integration. The need for the deal to produce savings at or above estimates is paramount, and the simple top-down estimates should be balanced against a thorough bottom-up analysis. While directionally sound, rudimentary models can be troublesome later when more detail and scrutiny is required.īest Practices: The synergy target is a key input into deal approval by the bank’s board of directors and, for publicly traded companies, is articulated to the market and investors. This method generally uses high-level assumptions and can include any number of “buffer” or “general savings” categories in addition to expected hard cost reductions. Using simple top-down estimates, investment bankers, CFOs, and other executives estimate cost savings associated with retiring redundant technologies and reducing duplicative headcount. Alongside assessing financial health and asset quality of the target organization, acquirers should also consider how easy it will be to sell, manage, and service the existing banking products for the target client base, in addition to adding new products and services from the target to the bank’s existing portfolio.Ĭommon Methods: While due diligence is taking place, leaders commonly keep the deal confidential, even from key stakeholders within their own companies. Though difficult, the most successful acquirers incorporate their synergy planning and estimates into the diligence process. We’ve outlined key considerations and best practices for managing synergies throughout the deal life-cycle. With deal approval often predicated on the ability to streamline the integration with greater efficiency and lower costs, achieving post-deal synergy is a must. Folding an entire company into an existing organization breeds complexity, particularly with an increased volume of work for back-office and shared service functions. In simpler terms, it means the whole is greater than the sum of the parts. ‘Synergy’ is defined as a mutually advantageous conjunction of distinct business participants or elements. A third, less discussed driver is synergy capture. ![]() ![]() It is widely acknowledged that two priorities generally drive bank mergers and acquisitions: one, the desire to expand the business through scale, geography, products, or capability, and, two, to strategically eliminate competition. The Future of Diligence in Private Equity Portfolio Value Creation for Private Equity
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