overestimating synergies

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Due diligence on the target’s customers would have revealed that they were heavy branch users and thus especially likely to By contrast, another company with substantial acquisition experience left the estimation of synergies up to the M&A department and paid the price. However, it takes only a very small degree of error in estimating these values to cause an acquisition effort to stumble. To address this challenge, we have used our extensive experience of postmerger integration efforts across a range of industries, geographies, and deal types to set up a database of estimated and realized merger synergies.3 3.As our database expands, we will continue to deepen our understanding of realized merger synergies and share the insights that emerge. Please try again later. Had line managers been involved, their due diligence would probably have revealed the fact that the target’s smaller centers had much lower labor productivity but compensated for it with an innovative Web-servicing program.

Having said all this, we must sound a note of caution.

Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. Synergy analysis also illuminates issues that will shape due diligence, the structure of deals, and the negotiations that lead up to them. Many deal teams neglect or underestimate the impact of onetime costs. A recent article by McKinsey & Company suggests that by broadening their deal teams, acquirers may be better equipped to realize these post-transaction synergies. In addition, even when synergies are correctly estimated, they can be difficult to capture.

While overestimating synergies was the second largest cause of difficulties or disappointments in transactions, the failure of due diligence to identify critical issues was the largest cause of difficulties in a recent survey. But when one large US bank acquired a competitor with a substantial geographic overlap, the acquirer suffered unusually high losses among the target company’s customers, rendering the deal unprofitable and exposing the merged entity to a takeover.

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