“Don’t worry – benefits are coming.” Well – sometimes they don’t. Overestimation of synergies is one of the reasons for unsuccessful M&A projects. If all and any – even remotely possible – synergy effects are included in the financial M&A model, any shortcoming will have an unrecoverable negative impact on ROI.
M&A Managers and C-Level Executives should consider risk adequately in their models. Amongst other, risks may emerge due to timing, market or lifestyle developments, competitor reaction, or innovation/substitution. When pulling the model together, a couple of prevention strategies can be applied to avoid stepping into the “We’ll be fine!”-M&A pitfall:
- Calculate major contributing synergies, and apply a decent risk factor
- Model what-if-scenarios with delayed timelines
- Consider potential competitive retaliation strategy
- Play with alternative models of the future
- Use corridors instead of fixed numbers