[Burcu İrim]

In M&A processes, synergies almost always play a key role in the investment decision. However, based on what I’ve seen in trainings and case examples, a significant portion of these synergies are either realized later than expected or not realized at all.

This raises a question for me:
Could we be overvaluing targets because of optimistic synergy assumptions?

There are a few points where I have some doubts:

Revenue synergies are often included in the model, but they seem to be the hardest to achieve in practice
Cost synergies are more tangible, but execution can be more complex than expected
It’s also not very clear how much these synergies are actually tracked after the acquisition

Another thing I’ve noticed is that the team building the model and the team responsible for execution are often different. This might create a gap between initial assumptions and actual results.

[Ross Van Allen]

We’ve all heard the statement that most (I’ve seen sometimes stated as high as 70% of) deals fail. In fact, the very concept of beginning integration during due diligence is specifically to avoid the pitfall of having the deal team make inaccurate projections and incomplete DD, then just hand over a completed transaction to PMI teams saying “here you go”. I think there are a plethora of deals that fail to recognize their synergies because those synergies are inherently flawed. However, I think it is also flawed to assume that synergies are unrealistic. I think the biggest challenge is that, upon successful integration, measuring deal success from a financial standpoint actually becomes very very difficult. So difficult, in fact, that it almost looks like the traditional financial measurement challenge stating that the more accurately you look to measure it, the more the cost to measure the output exceeds the value gained by knowing the actual numbers.

Don’t get me wrong, I think that every company wishing to get bought will absolutely find a way to project hocky stick growth based on some heretofore unknown trigger which makes them the next big unicorn. However, I think that as long as Corp Dev teams have PMI groups involved in DD analysis, those PMI groups will be able to recognize risks and issues that don’t pass the sniff test, and they can then raise the necessary risks to affect SPA negotiations and avoid overpaying.

[Milton Reyes]

Totally agree! In my experience, understanding a synergy at a strategic level is completely different from understanding how to execute it operationally. The gap between these two perspectives is exactly what prevents companies from turning their M&A business case into actual real-world performance.

Quite often, you can hit your top-line targets through sheer market push, but if you don’t clearly map out the detailed operational process, your bottom-line performance will ultimately suffer. At the end of the day, if leaders can align on the fact that processes aren’t just boxes on a chart—they are people—the opportunity to succeed multiplies. If leadership doesn’t internalize this, the synergy risks becoming just another wishful M&A strategic imperative left on a spreadsheet.

[Miguel Coelho]

As Ross said, around 70% of deals destroy value to the acquire. It is a transfer of wealth from buyer to the seller shareholders many times. One of the top reasons is that buyers pay to much of a high premium. I think for the following reasons:
– M&A tends to boom with optimistic markets, excess liquidity and in overall overvalued companies vs normal relative valuation metrics
– On top of that, buyers need to buy a target at a premium to convince target shareholders
– These creates a premium on top a potential overvalued baseline already
– In good times, human phycology tends to extrapolate the good times will happen forever
– Synergy cases is often not audited in terms of ‘where does that value comes from? how do you calculated? Was it bottom up, evidence based or on top line assumptions’?

Then it comes converting synergies into detailed initiatives and tracking. Besides the handover for PMI being done late and the PMI lead may lack details on synergies, in some cases I saw synergies not being detailed converted into initiatives. And in the majority of cases, tracked. To track you need to (i) create the baseline (ii) identify the financial milestones to be hit and when (phasing of synergies) (iii) define what is an actual benefit and how it should be coded into the financial system to it is possible to track

[Milou van der Hoek]

I agree with Milton that the idea on paper can only succeed if your leaders know how to operationalize it in the first place. I see a lot of value get wasted right there. In addition, Ive seen many M&A’s fail in the sense that they did not deliver the expected ROI within the expected time frame. However, over time, they did bring a lot of value to the company (just over a much much longer period of time). Is that why they remain so popular despite the depressing statistic?

[Sarah]

I think one reason M&A remains popular despite the mixed success statistics is that many transactions are driven by strategic objectives that are difficult to capture in a traditional ROI model. Access to new markets, technology, talent, intellectual property, or scale advantages may create value over a much longer horizon than the original investment case assumed.

That said, I agree that synergy assumptions are often too optimistic, particularly revenue synergies. Cost synergies are usually easier to identify, assign ownership, and track, while revenue synergies depend on customer behavior, cross-selling success, and market conditions that are much harder to predict.

In my view, the most successful acquirers are not necessarily those that forecast the highest synergies, but those that apply conservative assumptions, establish clear accountability for realization, and begin integration planning during due diligence rather than after closing. A realistic synergy case combined with strong PMI execution is often more valuable than an ambitious business case that cannot be delivered in practice.

[Amine Imghi]

Yes, optimistic synergy assumptions can lead to overpaying. The risk is greater when the purchase price already gives the seller a large share of the expected synergies. The acquirer then carries the execution risk while much of the potential value has already been paid through the acquisition premium. Revenue synergies should be treated especially carefully because they depend on customer behaviour, sales readiness, technology, operations and sometimes regulatory approval.

A realistic business case should define the baseline, timing, probability and costs required to achieve each synergy. Cost synergies may be easier to identify, but severance, system migration, contract termination and operational disruption can materially reduce their net value. The model should also test downside scenarios rather than relying only on the expected case.

I also agree that separating the modelling and execution teams creates a major risk. The IMO and key functional leaders should challenge the assumptions before the deal is finalized. After closing, each synergy should have an accountable owner, implementation plan and measurable target. The Steering Committee should track realized value against the original business case, including delays and costs to achieve. Otherwise, the organization may complete the integration without knowing whether the acquisition actually delivered the value used to justify its price.

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