Unleashing mergers and acquisitions value

A private equity fund acquired and merged two equipment manufacturing companies to increase operational efficiencies. Within six months, the private equity fund discovered that a significant revenue growth opportunity had been overlooked. One company was better positioned to focus on automated mass-market products, while the other had a competitive advantage in high-end, customized solutions. Thus, completed tasks such as creating sales teams, developing quoting processes and setting up back-end technology required revision to capitalize on the opportunity to stake out different positions in the market.

This example illustrates a common pitfall in deal execution: the underappreciation of commercial and strategic differentiation that can fuel long-term value creation. Successful M&A transactions go beyond cost synergies. They require a clear understanding of each entity’s unique market positioning and growth levers from the outset.

At the onset of a deal, the focus is predominantly on growth and increasing profitability. However, as integration progresses, leadership teams become preoccupied with merging operations. This leaves little time to convene and establish clear customer-facing strategies to achieve the intended deal value.

KPMG research indicates that 70% of deals fail to create true accretive value for shareholders. One of the reasons being that, amid all the organizational churn that occurs through integrations, operating leaders of the business lose focus on top-line value creation. This is especially true in cases of mergers between organizations of comparable size, or acquisitions requiring significant changes, where it is essential to build momentum around a completely new strategic plan for the integrated business. This seems intuitive but can often get lost when teams get locked in on day-to-day priorities to integrate and run the business.

Daniel Resnick

Revenue Growth M&A National Leader, Operations M&A

KPMG in Canada

We often see two common scenarios. First, leadership starts with a strong integration plan but lacks practical strategies, leading to poor execution. Second, businesses focus on immediate needs like payroll and IT infrastructure but neglect longer term growth strategies such as strategic product differentiation and customer expansion initiatives, which result in process inefficiencies that don't support long-term goals.

A recurrent example of this occurs during mergers, where initial efforts focus on integrating technology platforms. However, after several months, they realize that the products their clients demand, require entirely different configurations. This oversight can lead to operational inefficiencies that hinder potential opportunities for growth.

To avoid these common mistakes, leaders often wish they:

Made decisions about what products and services from the acquired business to focus on and how to fit them into the overall portfolio
Thought more carefully about how to integrate the companies’ technology stacks
Prioritized specific customer segments and/or geographies prior to redesigning their organizational structure
Waited to manage physical locations and digital channels until after pivoting to a new customer segment

Leaders need to think about how the combined business will generate revenues and grow before getting into the weeds on integration. This prevents spending excess time and money working around missteps, such as addressing issues around operational inefficiencies, sub-optimal technology stacks, alienation of customers, and frustration among employees. Ultimately, they may struggle to achieve a successful integration and the desired growth.

Building a robust revenue growth strategy

Here’s how to build a robust revenue growth strategy that can move a new entity forward.

Start with strategic planning early: Begin strategic planning as soon as possible. Ideally, planning begins before the deal closes or when a letter of intent (LOI) is in place. This involves aligning your new management team on the growth strategy to ensure operational decisions support the overall vision. When developing a strategy, plan for the first few months and for what your growth plans might be in one, three, and five years from now. The strategy doesn’t need to be finalized but needs to be well enough understood to help frame and guide major operational decisions.
Focus on key customer segments: Identify the key customer segments you want to serve based on your combined product offering and determine where growth must occur across these segments. Decide which product or service categories to focus on and measure progress. Ensure the entire organization – from front line sales to back-office support – is clear on who the key customers are and what experience to deliver so that every detail is considered during the integration period. Engage employees by clearly communicating the company's renewed strategy and how it affects their work. This helps them feel part of a broader plan and improves morale. When employees understand the strategy and feel connected to the company's goals, they are better equipped to deliver exceptional customer experiences.
Understand market dynamics: After a merger or acquisition, the competitive landscape changes. It is crucial to understand how the market will operate, how competitors might respond, and how your combined product offerings fit together to meet customer needs.
Define strategic growth options and prioritize: Conduct market and customer research to define strategic options. Business case these options, prioritize them, and align on a goal for the next five years. For example, having new stores or offices in one location could be a good start, but how do you expand your footprint in those areas? Examine your data to see which regions, locations, and customer segments should be prioritised for future expansion.
Align technology investments: Ensure that any technology investment aligns with your growth strategy. For instance, one of our clients realized a defined business plan to help validate and optimize their technology was absent. We collaborated with them to identify key products and markets for focus, enabling them to realign their technology investments accordingly. This approach allowed them to effectively justify their technology expenditure, thereby ensuring resources were allocated to high-growth areas.
Capture early momentum: Don't lose sight of immediate synergies and opportunities to deliver positive results while you execute on a longer-term revenue growth plan. Bringing teams together, building enthusiasm and camaraderie within the first 3 months can drive great impact and market momentum. This proactive approach helps avoid operational missteps and allows for sustainable growth over the foreseeable future.
Reporting and KPIs: Implement proper reporting and key performance indicators (KPIs) to help make decisions and track progress. This is essential for continuous improvement.

Those who fail to create a new plan for revenue growth could run into many problems. Customers or clients of the acquired business could feel overlooked or alienated if service levels change or product offerings become muddled. New employees might start worrying about where the company is headed and how the deal might impact their work. Companies could create the wrong organizational structure, and technology systems could become unwieldy if multiple platforms are now being used.

Creating a business case with established KPI’s for the new entity, will help you overcome these issues. You’ll also put yourself in a better position to develop a Target Operating Model and confidently make key decisions as soon as the deal closes.

Supporting long-term success and operational efficiency

Re-run the numbers with all the data you now have, to ensure the economics remain compelling when the deal is inked, and when a clear revenue growth strategy is in place. Although revenue growth strategies often need to be revisited, initial planning provides an essential framework to allocate operational resources confidently and avoid costly missteps.

Successful mergers hinge on the ability to think ahead, plan strategically, and execute effectively. Prioritizing growth strategies and aligning operational decisions with long-term goals ensures companies can navigate the complexities of M&A effectively and drive more value from their transactions.

How we can help

KPMG deal advisory practice offers comprehensive transaction-to-transformation services. Our deep sector knowledge and data-driven strategies helps you increase value through all phases of M&A transactions and beyond, thereby enabling performance transformations that deliver tangible financial impact.