When analyzing the potential for synergies in a merger or acquisition, executives tend to focus on costs. After all, cost synergies are relatively straightforward to estimate and can deliver value almost from Day 1. Revenue, or growth, synergies that emerge from the combined companies’ heightened ability to generate sales than they could individually take longer to capture and require a more nuanced approach. They usually involve multiple functional groups within organizations and their ultimate financial impact is tough to measure.
Part of the challenge lies in the fact that companies tend to underestimate the complexity of cross-selling—that is, delivering products and services traditionally sold to one set of customers to another set of customers. Fewer than 1 in 5 organizations engaged in M&A that we polled last year achieved their cross-selling goals. On average, the gap between goal and result was 20 percent, and capturing the majority of the synergies identified took the companies we studied three to five years.
But getting cross-selling right is worth the investment. Our earlier research found that cross-selling accounts for 21 percent of the value companies derive from revenue synergies—the most of any levers we studied.
Why are cross-selling programs so hard to implement in post-deal situations? To better understand what successful cross-selling initiatives in merged organizations require, my colleagues and I surveyed more than 75 seasoned M&A executives across 12 industries who have significant cross-selling experience. Our findings, summarized in this article, highlighted six categories of cross-selling synergies. My colleague, John Chartier, explains these six dimensions—the Six Cs—and the specific practices that help organizations overcome the challenges involved in this blog.
As the M&A tide starts to rise with the (all-too-slow) ebbing of the COVID-19 pandemic, many companies will be out hunting for acquisition targets or merger partners. To justify those deals, they will need to differentiate genuine cross-selling opportunities from wishful thinking.
I’d like to hear your thoughts. What has been your experience of trying to capture revenue synergies from M&A? What obstacles did you encounter and how did you overcome them?