Typically, when you go to management and the management goes to the board to talk about revising one-time costs, you are right in that crucible of setting synergy targets and thinking about how much you will spend on the deal. What is our aspiration for revenue synergies in terms of value and timing? So, if it’s $100 million in announced synergies, the internal target will be something like $150 million.

But the variation is significant.

The companies that do this well, they get past that always-messy integration phase and move to business as usual as fast as possible, so their core operators can pivot back to focusing on the core business. Jeff Rudnicki is a partner in McKinsey’s Boston office, and Andy West is a senior partner in the Madrid office. We'll email you when new articles are published on this topic.

%PDF-1.5 Lack of clarity in understanding where the sources of value are means that significant pools of opportunity are overlooked. Andy West: Combinational synergies are the synergies associated with bringing two organizations together and eliminating redundancy.

Sign Up for Insights Delivered to Your Inbox, Industry Segment Sean Brown: Can you offer any guidelines on what synergy levels companies making acquisitions should be aiming for?

In sectors like tech, the competition, the industry dynamics and other things like that will inform the premiums paid, not the synergies. Synergy benefits can come from four potential sources: Revenue increase. Sean Brown: Let’s dig a little deeper on the point you made earlier about announcing synergies. hereLearn more about cookies, Opens in new Plus, you also get free, bonus case studies based on real M&A deals and leveraged buyouts in other industries - such as TPG's $3 billion leveraged buyout of J Crew and the $6 billion LBO of Kinetic Concepts.

The other thing is, companies are often very bad at estimating, outside in, the cultural differences between themselves and the potential target.

For a seller a pro forma tells a story and illustrates an opportunity. Reinvent your business. So, if you have a bad market reaction the day of announcement, good things are coming, our research shows. Andy West is a senior partner in our Boston office. All survey participants had led revenue-synergy programs for more than two deals worth in excess of $2 billion each. <> Sean Brown: Is there anything else you would warn companies about—things you see as caveats around synergies? In three years’ worth of deals we looked at, or almost 2,500 transactions, only about 450 of them announced cost synergies.

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