Best Practices for IT Sourcing During Merger & Acquisition Initiatives

​When should planning for a merger or acquisition begin? If your answer is Day 1 - the first day after you close the deal - you’re wrong and you’re behind by at least 6-12 months.​​​Planning & executing a marriage like this is not something that should be done alone nor should you wait till the contracts are signed to begin the process.

​In this article, I’m going to teach you everything you need to know about the appropriate steps  IT Sourcing should take before, during, and after the M&A transaction. We are going to discuss best-in-class planning and execution techniques for IT Sourcing during both 1) merger and 2) acquisition initiatives. Foundationally, people will use the same tactical steps for either a merger or acquisition so all the information you find here will apply generally to both.

There are many reasons you should not do this alone:

You need outside help to get the job done successfully.

Every company that we have ever met, or heard about, that has tried to successfully identify and execute on synergy initiatives purely with their own internal resources has completely failed. This failure can come in the form of missing  transaction deadlines, cost savings opportunities, or losing key talent due to burnout, just to name a few. In fact, companies that primarily utilize internal resources generally extend the timeline for any synergy recognition by 2-3 years.

This is for multiple reasons ranging from workload overallocation, employee burnout, to employee turnover. We could write an entirely separate article just on the emotional impacts your employees will feel after M&A activities are announced. These emotions are also unique to which side of the acquisition their jobs are located (buyer vs. seller).

If you think about the rationale behind any M&A transaction it really boils down to a desire for higher revenues and lower costs. To ensure your company is able to recognize the benefits of this transaction as quickly as possible, you’re going to need help.

Resource Constraints

This is a full-time job. Managing activities around identifying Day 1 requirements (activities to keep the business operating) and Value Capture Initiatives (activities that are intended to reduce demand, labor, or cost) requires a huge time investment.

Asking your existing resources to oversee these activities in addition to their other responsibilities is unrealistic. It is the equivalent of giving two full-time jobs to one person. Things will naturally slip through the cracks and this is entirely avoidable.

Market Intelligence is another resource constraint that is important to mention. There are market intelligence research firms out there, like Gartner, McKinsey, and Forrester, to name a few, who provide a wide-angle view of market data. Their data is a great starting point for many organizations but it won’t help you get to the finish line without advisors and execution partners.

Value Capture Initiatives

We recommend isolating cost savings initiatives into a minimum of 3 categories. The following three titles are widely used within the industry:

• Quick Wins
• Strategic Sourcing Events
• Business Transformation

Naturally, when we identify Quick Win opportunities we are indicating that the time (and corresponding effort) to value is relatively short. On the other side of the spectrum, when we identify a Business Transformation initiative we recognize a large opportunity exists but it will take significant time/effort to realize.

Every M&A transaction will present different opportunities and challenges. You will be pulled in so many different directions that at times it will feel as if you’re getting nothing done at all. At those moments, it’s important to recognize the planning and analysis efforts that have taken place to make this opportunity come to life.

Speaking from experience, we strongly advise you to “keep things simple” when it comes to identifying, classifying, and tracking your Value Capture Initiatives. The more complexity you add the less time you’ll have achieving synergies that make a material impact for your company.

Quick Wins

Finding efficient, simple ways to reduce IT spend is paramount for any company… especially one which is embarking on an M&A transaction. The easiest and quickest solutions come from simply taking an inventory of each company’s supply base and contracts.

Combining company spend can create natural opportunities to renegotiate agreements - especially in the IT sector. By analyzing contracts to identify areas of overlap and redundancy, you can find multiple cost-saving opportunities including volume discounts and supplier/contract consolidation.

Strategic Sourcing Events

Strategic Sourcing Events are what most people think of when they conceptualize how IT will identify and realize cost savings as a result of combining company spend. Naturally, these initiatives require more effort than Quick Win opportunities of which may not be readily apparent prior to Day 1.

These initiatives will focus on rationalizing the supply base, rates, and services. A smart approach will be to break out these initiatives via a digital capability taxonomy that matches how your organization categorizes IT services to its internal and/or external users. This will proactively align your cost savings initiatives to your internal business units and company objectives.  

Sourcing events will most often include the typical procurement steps of conducting RFPs (Requests for Proposal) and negotiating with suppliers to rebid contracts. This step can take anywhere from 3-24 months depending on the size, scale, and complexity of your transactions.

Business Transformation

This last one is the most complex. It involves changing the way the business functions - whether a process change or a platform change or some other foundational alteration. These opportunities take the longest, clocking in around 1 to 3 years to complete.

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Identifying corporate synergy initiatives is a complex endeavor. You need a team of both internal and external experts dedicated to driving value capture for the NewCo (newly combined company). If your transaction is relatively small, this team can be as simple as one person… the point being there always needs to be someone dedicated to this effort.

Only outside expertise will be able to truly advise you on target market rates, supplier options, service levels, etc. You only know the rates and the companies you’ve worked with - you don’t know what other businesses are paying for the same products, not to mention any new suppliers coming your way through the M&A.

Bringing in outside help is critical to ensuring you are well-positioned to identify, analyze, and execute cost synergies on, and before, Day 1.

Legal Reasons

It's an SEC violation if you act on behalf of another publicly-traded company before you actually own them. This could be viewed as collusion within the marketplace.

To refrain from any violations, it’s advisable for companies to leverage external, independent advisors to ensure the information on the newly combined company is used appropriately and only for value capture initiatives.

You want to bring someone in who can help you do the appropriate analysis so that there’s a distance between your company, your employees, and the company you’re merging with or acquiring.

Process Standardization

No matter whether you are a 100-person company or 100,000, you’ll quickly discover the importance of having standard procedures within any M&A transaction. Program management information needs to be collected, analyzed, and presented in a consistent manner to eliminate ambiguity for senior executives.

Standing up a PMO (Program Management Office) who can standardize the analysis and the presentation of information can, and will, greatly reduce chaos.

You need to start the planning process immediately.

In an ideal world, the minimum amount of time you really need to get this right, for a large transaction of $1 billion or more, is six months prior to close to complete the planning process.

Ideally, you will stand up your Enterprise Integration Management Office (EIMO) once you enter the final due diligence process with your target company. Again, the earlier you can get this planning started, the quicker you’ll be able to realize those profits.

An EIMO is a separate individual business unit and is accountable for all the integration activities including both the identification of synergies as well as Day 1 activities.

The knowledge transfer process from your due diligence team to your EIMO and Integration Management Teams (IMT) will prove to be invaluable.

Experience has taught us that no matter how prepared you think you are, there will always be hiccups along the way. The longer runway you have prior to Day 1, the greater the probability your company will start saving money on, or before, Day 1 rather than in year 2 or 3.

In order to prevent both roadblocks and bottlenecks, you need to empower your people with clear and distinct decision-making authority immediately.

Most organizations fall behind in their execution plans based on a lack of clear decision-making authority when acting on behalf of the newly combined company.

This naturally drives all decisions to the EIMO which turns into a bottleneck for the organization.

We recommend setting clear guiding principles and tactical direction (via examples) early within the planning phase to ensure your key stakeholders are aligned and empowered to act as catalysts for the EIMO. While each organization’s decision-making authority and autonomy is unique to their culture, what remains consistent is the speed in which decisions will need to be made before, during, and after the transaction.

In short, the more authority you can safely push downwards inside of your organization, the better.

The change management process is critical.

Clear communication guidelines need to be created in coordination with your legal team and need to take into consideration internal, external, and regulatory impacts.

Internally, you’ll have employees concerned about their existing roles within the company and how the transaction will affect their lives.

Externally, you’ll need to manage expectations with suppliers of both companies.

Immediately upon announcing any M&A transaction, the phone will start ringing for both organizations. Suppliers will be trying to take advantage of the change to gain more business and/or to increase rates.

Be prepared to immediately publish a message to all your suppliers after an announcement. Doing so will help to avoid a tidal wave of requests within your planning phase. At a minimum, publish a blanket statement on your external facing website for suppliers to read in a self-service manner.

Clear and proactive communication both internally and externally will allow your organization to be ahead of the Q&A frenzy.

Two Key Phases of an M&A Transaction

Planning: Generally, this encompasses all activities between the transaction announcement and Day 1 (first day of the NewCo).

Execution: Generally, this encompasses all activities that take place to realize the operational synergies identified within the planning phase. Most commonly, these activities are post Day 1, however, we will discuss opportunities to start in the planning phase.

It’s critically important to start planning immediately after (or even before) the announcement of the transaction. If you fail to start pre-Day 1, it’s important to understand that you will have already lost a significant amount of potential value capture from the NewCo. As with any cost savings project, you need to prepare as far in advance as possible to ensure your execution teams are well prepared and aligned.

An Opportunity Tracker for Tracking/Reporting in Both Phases

Within both phases, it is extremely important you develop and actively manage an Opportunity Tracker in the interest of identifying 1) initiatives that are business-critical for continuity purposes and 2) those which will identify cost savings for the new company.

Tracking these initiatives in an easy to understand and consistent manner will provide several intrinsic values for your organization and its many stakeholders. Most importantly, it will serve as a single source of truth for reporting and execution purposes.

Your Opportunity Tracker needs to capture two primary areas of work: Operational Requirements for Day 1 and Value Capture Opportunities that contemplate action before, on, or after Day 1.

Example of a Day 1 Operational Requirement:
What happens to the acquired company’s email server after Day 1?

Do the companies merge their email platforms or do they keep them completely separate?

Who will be accountable for the transition plan?

While this action may not be a value capture initiative, keeping email working for the NewCo is arguably critical to business continuity. This is an example of an operational requirement.

Example of a Value Capture Opportunity:
A value capture opportunity is essentially a cost savings synergy that originates from the harmonization of suppliers, contracts, etc.

Expanding upon our email Day 1 requirement above, if your organization makes a decision that the NewCo will migrate to a single email platform (most common), this would create a value capture opportunity based on a contract/rate negotiation event with a new or existing supplier.

Examples of initiatives may include a renegotiation with Microsoft or a sourcing event to identify a new service provider. The objective is that you need to quickly and easily be able to isolate those line items that are Day 1 Requirements vs. Value Capture Opportunities. Within the Opportunity Tracker, each line item will include details about the Cost to Achieve, ROI, resources needed to achieve the goal, etc.

Download my Opportunity Tracker template to see how this information can be laid out.

We also go over the Opportunity Tracker in detail later in this article.

Organizational Design

Whether your business makes $1 million a year or $1 billion, every company needs to create an EIMO (previously explained under “You Need to Start the Planning Process Immediately”) that acts as its own specific business unit. The process is the same, although the size and scope may change.

If you’re going through an acquisition, the acquiring company is responsible for creating the EIMO business unit that reports directly to the CEO. If you’re merging, the company that will be retaining the CEO will be responsible for the EIMO.

Basically, the EIMO business unit needs to be attached to the leadership team of the new company.

Requirements of the EIMO

This unit needs to have its own budget. You know that in business, you’re going to have to spend money to make money and this temporary department is no different.

Most companies spend 5% of the new company’s value on M&A services in order to save 40% after the transaction is complete.

In addition to their own budget, your EIMO needs its own targets.

Although it’s not technically making money, it will be saving your company significant sums if organized properly.

​Control Tower

Underneath the EIMO, you’ll have a Control Tower.

The Control Tower ensures that all of the information that’s coming from the IMTs (and the Functional Teams below them) are being harmonized in a consistent and actionable way. If all of the information is well organized, you’ll be able to make smarter business decisions.

Integration Management Teams & Leads

To properly succeed, you need a dedicated Integration Management Team whose full-time job is to identify synergy opportunities and Day 1 requirements.

This team will have a leader who is accountable for all the activities of the team. Reporting to the leader will be individual owners of specific initiatives or capabilities.

For example, in an IT IMT you’ll have one lead who is responsible for all the activities of the team and the rest of the team will be made up of one person per category of spend. Maybe one person in charge of infrastructure or hardware, another in charge of software, and another in charge of services, etc.

Basically, one person on the team per vertical of how the business operates. These individuals are accountable for identifying Day 1 operational requirements and value capture opportunities for the NewCo.

Functional Teams

While your IMTs are focusing on Day 1 operational requirements, it’s important for your IT Sourcing/Procurement team to work alongside these same teams in the interest of identifying value capture opportunities.

In realistic terms purely based on how large organizations operate, it’s important to recognize that the IMTs will often be more focused on Day 1 operational requirements while your IT Sourcing/Procurement team will be primarily focused on value capture opportunities. This is completely acceptable as long as there is continuous alignment.

Planning Phase

Step 1: Clean Room

During the very beginning of the Planning Phase, you need to set up - either virtually or physically - a Clean Room.

A Clean Room is essentially a quarantined environment where you store and analyze information about the new company you're either acquiring or merging. This information is only available to a handful of individuals within the IT IMT and Functional Teams, and they will be responsible for analyzing data, contracts, etc. in the interest of identifying both Day 1 operational requirements and value capture initiatives.

The room itself can be virtual in nature such as a secure SharePoint or Google Drive. The bifurcation of information from the rest of the organization is important to minimize public perception, as well as operational and regulatory risk. Make sure each individual that has access to this virtual or physical Clean Room signs a separate Confidentiality Agreement to ensure information is not shared with others prior to close.

Obviously, your legal team will be the ultimate determining factor for who should have access and when information can be shared more broadly as each transaction is different.

Most of your value capture initiatives will originate from the Clean Room as these individuals will be able to compare suppliers, contracts, rates, etc. and place them on the Opportunity Tracker.

Step 2: Gather Data

Both companies will upload data and information into the Clean Room.

The company being acquired (or losing CEO status during the merger) needs to upload their data according to the same taxonomy of how the new leading company categorizes their spend.

This is subtle but a very important nuance.

You, the acquiring company, want their data to match up with your spend categories as much as possible so that you can create an accurate analysis.

For example, your spend taxonomy splits categories out by hardware, software, services, mobile telecom infrastructure, etc.

When you acquire data from the other company, map their spend according to your own taxonomy so that you can have a one-to-one relationship between your current contracts and their contracts that will eventually have to become one unified contract. You want to compare apples to apples, not oranges.

Step 3: Analyze

When you have the Clean Room filled up with the data from both your company and the other company, you’ll be able to start analyzing the opportunities available.

This will give you your first look into:

• Combined company spend per category
• Supplier overlap, if any
• Current state rates per supplier/digital capability

With this information, you can start identifying initiatives within your Opportunity Tracker.

If each company has a Microsoft contract, for example, you can start looking at the costs in each of your contracts - who has better rates and how you can negotiate those further with a larger volume, etc.? This is considered a Quick Win opportunity.

If there is no supplier overlap in the same category of spend, then you don’t have a Quick Win opportunity but instead a Sourcing Opportunity. In this case, you can go to market with your new combined spend and do an RFP to move everyone to the same supplier under one contract instead of multiple.

​Keep An Eye Out for Contract Risk

​As I’ve mentioned before in other posts on IT Software negotiation, it is very common for major software providers to intentionally insert M&A language in their master service agreements and/or order forms that are very ambiguous and open-ended. What remains consistent is that, by default, this inserted language will always be in favor of the software company. Subsequently, they know their primary contacts within the client organization rarely review such language as it’s not top of mind at that point in time.

We find that 2 out of 3 clients entering into an M&A transaction don’t even think to look for contract risk within their existing contracts. Subsequently, we find this same statistic holds true for the number of times we identify risk in those contracts we review on behalf of the client.

One very common example of contractual risk we identify for clients is value-based pricing mechanisms. Specifically, large software companies will include language that indicates “the parties will readdress pricing based on increased customer value extracted from the platform.” We call this commercial risk as it essentially creates an open playing field for renegotiation. Some of our clients actually call this “ransom language” based on software companies being well aware of the cost of change to move off the platform during a very sensitive time. In other words, these suppliers will charge a “ransom” that is just under that of the cost of change baseline, just because they can.

While it may be fair to say the NewCo will achieve greater value from the platform, it’s important to proactively identify and mitigate (to the extent possible) any potential risks (such as commercial risk) to ensure you minimize and value capture slippage.

Other very common questions you should ask yourself during your contract risk assessment include the following:

• Are you allowed to terminate for convenience?
• Are you allowed to use your existing contract with a new subsidiary and/or wholly owned entity?
• Are you able to renegotiate the contract now to avoid any surprises after Day 1 and/or the natural expiration of your current contract?

When you’re doing this assessment, prioritize your time and energy around your largest spend contracts first. Look at your top 20 supplier contracts in terms of spend - no more than that - before you look at all the others.

You don’t have to comb through each of these contracts by hand either. There are software products out there that will do an Optical Character Recognition (OCR) scan for you and isolate contracts that have keyword risk.

Levels of Contract Risk Remediation:

Level 1 - OCR

Once you stand up your Clean Room with your various contracts and documents, you essentially want to run them through some sort of search tool to identify if they have any key topics that might trigger a negotiation event as a result of the transaction.

A few examples of OCR companies include Kronos OCR, Seal OCR, KIR OCR, Vanguard OCR, and a few others can be found here. We have no affiliation with any of these products, we merely want to provide information you may find useful.

Common causes for renegotiation include:

Assignment - Does the contract allow you assign it to another company? You’re buying the company but not all contracts can be assigned during an M&A.

Change of Control - This concept is similar to assignments. Basically, does the contract include continued control language that would allow for a new company to take over said contract?

Governing Law & Dispute Resolution - What state, county, or jurisdiction does this contract live in? Some suppliers don’t want to work in specific jurisdictions because of legal restrictions or political friction.

Limitation of Liability - Your legal team will have language surrounding what kinds of liability guidelines they’re willing to accept, especially with suppliers. During an M&A, you’re acquiring so many new suppliers it’s easy to lose sight of this potential risk, particularly within the R&D field. As contracts naturally expire, you’ll want to align the new suppliers to your standard contract language to minimize risk.

Renewal - Are your contracts set to automatically renew? Are they evergreen?

Restricted Covenants - This language essentially outlines that, in order to receive your pricing today, you basically have to spend a certain amount (or meet certain thresholds) per contract cycle/year. These contracts include Minimum Spend Levels.

Termination - Do the contracts include Termination for Convenience? If they don’t, you need to know the terms of termination and weigh that as a “cost to achieve” within any initiative within the Opportunity Tracker.

These are some of the most common reasons for renegotiation with suppliers. While it’s possible to have human eyes scan contracts for this language, it’s much less expensive to have a software churn this out for you with the intent and understanding that this process will only highlight 75% (at best) of your basic risks.

We always recommend you supplement strategic supplier contract risk assessments (typically your top 10 suppliers by spend) with a Level 2 assessment.

Level 2 – Human Eyes Looking for IT Risks

Level 2 contract risk evaluation is necessary to identify specific and material risks that may adversely impact your company. From a tactical perspective, this requires human review with a specific focus on high impact risks to your organization.

The following risks are typically identified in Level 2 evaluations:

Volume Based Pricing (Data Pulls) - No matter the size of the M&A transaction, you’ll almost always have two different suppliers providing the same or similar service. If you aren’t able to consolidate to one supplier right away, and require data to be pulled/integrated from multiple systems, you have the potential to see volume-based contracts skyrocket for 6-12 months as a result of both companies using both services.  

It’s important to remember that volume-based contracts come in all shapes and sizes ranging from raw data consumption to API calls. It’s important to conduct an assessment of your Day 1, 30, and 100 requirements to ensure, at the very least, your most strategic supplier relationships (aka highest cost contracts) are analyzed to proactively identify this situation. Identifying these additional costs on, or around, Day 1 will inform your business case on how quickly you merge systems, processes, etc.

In situations where two companies need to run concurrent systems for quite some time for operational and/or regulatory reasons, it’s very common for this to create a “negative synergy.” In other words, this will be an added expense to the NewCo that will degrade the potential synergy cost savings generated from the transaction.

You need to identify systems/processes that will run concurrently as early as possible within the Planning Phase. The supplier contracts that are governing these systems/processes will need to be analyzed immediately to quickly identify the potential financial impact to the NewCo. Naturally, if you identify a situation that causes you to spend an extra $1 million+ during the transition period, you’ll be more inclined to get it streamlined earlier rather than later.

Pricing Mechanisms tied to moving targets (R&D department spend, annual revenue, etc.) - Almost all software suppliers sell with a “value-based pricing” mindset but only some of these suppliers charge a customer tactically in this manner. Within large organizations, we often find this within supplier contracts supporting the R&D department.

Some software suppliers charge by value obtained while others benchmark the perceived value extracted by utilizing your annual revenue, and/or R&D spend, as a cost metric.  

This can be a slippery slope because, for most businesses with an R&D department, your annual spend is going to double. Without the proper protections in place, this potentially equates to your existing contract cost doubling as well.  

While contractually this is something they may be allowed to pursue, most strategic suppliers will accept an M&A transaction as a renegotiation event IF you catch this potential risk early.  

Yes, we intentionally underlined “IF” within the last sentence. It’s important that you renegotiate these contracts as early as possible before your cost and leverage spin out of control. If properly managed, most savvy software suppliers will accept a decrease in their potential future revenue if they feel comfortable that they will secure a strategic position within the NewCo’s supply base. Again, this needs to be very carefully managed.

License Restrictions - Are there country-specific license agreements? Or are they global in nature?

For example, if a software contract only allows you to use their platform in a specific country, but the NewCo will require employees to access that same platform globally, you could be hit with massive fines for license infringement.

Notice Obligation - Does a contract require explicit notice prior to an acquisition or merger taking place in order to be transferred to the NewCo?

If notice is required, and you don’t provide the same during your Planning Phase, you could find yourself in breach of contract and face heavy fines, a potential lawsuit, or termination of service.

The NewCo Spend Baseline & Supplier List

Just like building a new house, it’s important you build a strong foundation. Your foundation for the NewCo starts with a combined spend baseline and supplier list.

Tactically speaking, this can be achieved through spend visibility tools or by just using a simple Excel Spreadsheet. From a baseline perspective, you will want to create a master list of all your suppliers, which organization they are currently supporting, and the annual spend of each split out by organization (if the supplier is servicing both companies). Data permitting, we also suggest you identify “how” each supplier is supporting each organization by assigning a spend category and/or a digital capability taxonomy code. If you have this level of detail, it will prove to drive efficiencies for downstream analysis activities.

Create your spend/supplier baseline as soon as possible during the Planning Phase. Subsequently, you’ll want to create this baseline before you start identifying any cost savings initiatives no matter how much your organization is pushing for the same. We have seen countless hours wasted when clients, and/or partners, start identifying opportunities before they have built and aligned on, a foundational baseline.

While this may feel like a  tactical step, it is extremely important as it creates the foundation for future steps you’ll take.

From this foundational list, you’ll be able to quickly identify, analyze, and execute the following Quick Wins:

• Identify duplicate suppliers providing the same service to both organizations; and,  
• Identify overlapping services across multiple suppliers.

IT Sourcing Initiatives Identification

This next step needs to be done in a very coordinated and organized way. For simplicity purposes, we suggest creating a separate Excel Spreadsheet that is purely dedicated to identifying synergy opportunities.

We strongly advise this be a standalone document for quality assurance, data backup, and access control reasons. Within this document, hereby referred to as the “Opportunity Tracker,”  you will be proactively identifying your value capture initiatives, stakeholders, synergy targets, etc.

The Opportunity Tracker will serve multiple downstream purposes but most importantly will serve as a single point of truth for synergy planning and execution. It will help you identify prospective value capture (financial opportunity) and the time and resources it will take to achieve them.

The overall guiding principle is that this Opportunity Tracker is going to keep your initiatives straight from a Project Management standpoint and it’s going to help you prioritize what to work on first.

Your Opportunity Tracker should classify opportunities based on:

Initiative Grouping - This is usually based on supplier and/or digital capability. The main priority here is to roll multiple actions with one supplier into a single initiative.

Category of Spend - Categories of spend may include IT Software, Hardware, Mobile Telecom, etc.

Type of Opportunity - There are 3 different types of opportunities (referenced above under “Value Capture Initiatives”): Quick Wins, Strategic Sourcing Events, and Business Transformation.

• Quick Wins are those initiatives that can be done quickly and with very little effort.

• Strategic Sourcing Events are initiatives that require a sourcing professional to source the marketplace to capture the most value for your NewCo. Most commonly, this will include activities such as supplier rationalization.

• Business Transformation initiatives fundamentally change the way you do business. These generally take the longest amount of time, effort, and budget but will return the greatest amount of value to the NewCo. Most commonly, these initiatives will include process changes, etc.

Supplier Impacted - It’s very important to identify which supplier(s) will be impacted by each initiative. You want to be sure to break this out by organization so you can quickly identify the location of the impact.

Stakeholders - In this cell, you need to identify key stakeholders that need to stay aligned and supportive of the initiative. The identification of key stakeholders is very important not only for project tracking purposes but also for tracking change management efforts. Specifically, you’ll want to ensure stakeholders are aligned to the “why” statement of any change so they can proactively act as change catalysts. Other downstream ways to use this data will be to ensure cross-pollination of ideas, identify and proactively prevent burnout, and to enable delegation.

Frequency of Savings - Will tackling this initiative give your company recurring savings or is the value capture a one-time occurrence?

Type of Synergy - There are basically 8 different types of synergy that I’ll go over briefly here:

• Wedding Present - When a supplier gives you cost savings or a concession in the interest of goodwill. They want to be in your good graces during and after the M&A.

• Demand Optimization - When you are lowering demand to use a specific supplier or to use a specific service. Your costs go down because you have fewer licenses, etc.

• Supplier Rationalization - We touched on this briefly in the Strategic Sourcing Events section above. Depending on niche offerings, digital capabilities, rates, etc, you need to deliberately create a supplier strategy that drives the greatest value for your NewCo. This may, or may not, include eliminating duplicate suppliers, etc.

• Process and Specification Rationalization - Takes place when you’re eliminating duplicate processes, etc.

• Payment Term Optimization - This primarily focuses on improving cash flow terms for your NewCo by extending payment terms, net discount rates, etc. This is a very important, but tactical, synergy opportunity that collectively could make a significant net positive impact for the New Co.

• Price Alignment - Quite simply, the process of leveraging an existing contract that secures the best rates with a single supplier.

• Supplier Relationship Management - This is often harder to quantify from a value capture standpoint but often a critical component to strategic suppliers for the NewCo. Identifying an initiative with this classification is a deliberate identification that a supplier relationship needs to be uplifted in order to extract the greatest amount of potential value.

• Volume Consolidation - Last, but certainly not least, this classification focuses on consolidating the volume of spend with suppliers to drive better rates and commercial terms for the NewCo.

Confidence to Achieve - While completely subjective, determining whether you have high, medium, or low confidence in achieving this initiative is still an important consideration for tracking and prioritization purposes.  

Time - Identifying the amount of time an initiative will take in order to start achieving the synergy. This is one of several critical variables within the Opportunity Tracker to ensure synergy financial planning and resource allocation alignment. We recommend quantifying this in terms of months.

Resource Requirements - In this section, you outline what resources are required to successfully execute the initiative. This includes both internal and external resources.

Internally, which of your staff will be attached to the execution of this project?

Externally, will you need advisors? Sourcing support? Legal, financial, or PM support? This can come in the form of advisory support to identify “should cost” benchmark rates, management consulting, or sourcing professionals who know how to run sourcing events (ex: RFPs).

You’ll want to establish a baseline cost for each role in order to calculate a “Cost to Achieve” over time. The Cost to Achieve is your gross costs that will be incurred during the Planning and Execution of a specific initiative. In other words, these are negative costs against any specific synergy estimates for a specific initiative. Naturally, you will want to identify and execute those initiatives that have the lowest Cost to Achieve with the greatest synergy potential.

Synergy Estimate - In this cell, you’ll identify the financial value capture target you have identified (by year) for the NewCo. In a perfect world, this should be calculated as the net synergy which contemplates the gross savings potential against your gross Cost to Achieve. In doing so, you’ll be able to better prioritize resources to those initiatives with the greatest potential upside.

One important thing to note about these synergies - each initiative can have more than one synergy opportunity attached to it!

Execution Phase

In order to successfully execute your plan, we recommend focusing on a few foundational concepts that we have found (through client feedback) organically drives downstream efficiency. In the interest of brevity, we have included a basic outline of these best practices below.

Establish Guiding Principles to Prioritize Projects

The first thing you want to do is establish guiding principles around how individual projects will be resourced based on complexity and value capture potential.

It’s critical to align with your internal finance team on a cost-to-achieve metric that is consistent across the organization. You need to have a clear run rate value identified for the several different internal resources types that will be supporting the execution of your projects. At a bare minimum, you need to identify a blended hourly internal resource cost that is all-encompassing.

To drive process efficiency, you may be more inclined to push decision-making authority farther down into the organization and enable project teams to make decisions based on value vs. cost.  

‍This will decrease time to value on your synergy initiatives. It eliminates the need to request resources or approval to hire from the EIMO which would otherwise bottleneck progress.

We recommend allowing Project Teams to make unilateral resourcing decisions if the cost to achieve is 30% or less than the expected value from the project.

For example, if you project to save $100K by completing this initiative, then it’s acceptable for the Project Team to spend $30K to achieve the savings without a need for individual requests for approval.

Internal Alignment is Critical

The most important thing to keep in mind during the M&A Execution Phase is ensuring continuous alignment between Functional Teams, IMTs, and the EIMO.

In order to keep alignment between the teams, you need to leverage the Opportunity Tracker as the single point of truth for all initiatives and their respective synergy targets. The Opportunity Tracker should be accessible by all relevant stakeholders that are looking to consume information about synergy targets, project status, etc. The more you enable a self-service environment the less you’ll need to respond to data requests, etc.

Subsequently, we recommend establishing weekly check-ins with both Project Execution and Leadership Teams to ensure continuous alignment. During these meetings you should also raise any material issues, risks, and/or achievements for immediate recognition and triaging.

With all of this being said, it’s important that you are cognizant of not placing too many meetings on the calendar that may be close to the same purpose. This problem already exists in almost every corporate culture during the normal course of business so please recognize that this problem will exacerbate itself in an M&A environment.

This graphic represents how we believe weekly project alignment should occur:

This weekly cadence encourages Project Teams to make substantial forward progress before Friday of each week. In other words, this naturally incentivizes those with a personal drive for success to share actions taken/planned each week.

The Opportunity Tracker (as the single source of truth) will enable Leadership teams to monitor this progress in both a self-serve and meeting environment so they can be prepared to ask and answer questions. As we hope you can now see, the Opportunity Tracker will be the discussion platform of choice during both Planning and Execution Phases as it will be managed and presented on a weekly basis in a multitude of forums.

Don’t forget to include the Finance Department in these weekly updates. By doing so, you’ll eliminate any surprises down the road from a synergy tracking standpoint while also ensuring proper expectations are managed at the C-Suite level.

Build a Control Tower

Leverage a Control Tower framework to ensure information is reported in a clean and consistent manner.

This is especially important when reporting information to the EIMO who is then reporting information to the C-Suite.

The Control Tower should report on the following topics:

Resource Allocation Monitoring - How many resources are being used? Are you overtaxed or undertaxed in certain areas of the organization?

Value Capture Initiative Status - How many projects do you have underway and planned? What does your pipeline look like?

Synergy Target Update vs Actuals - This is an update of the financial synergy targets for planned projects, and the actuals for projects that are underway.

Significant Risks/Issues - These can’t always be predicted ahead of time and should be communicated as they arise.

Each of these topics need to be addressed with each IMT. This information should then be harmonized, prioritized, and presented in a consistent manner to the C-Suite.

Establishing clear lines of communication, decision-making capabilities, and tracking systems combined with weekly alignment meetings will help ensure a smooth and efficient Execution Phase.