Here is a brief excerpt from an article written by John Chartier, Alex Liu, Nikolaus Raberger, and Rui Silva for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Companies pursuing revenue synergies can’t take them for granted. Leaders need a clear grasp of where those synergies lie—and the persistence to capture them.

The intense M&A activity of recent years shows no sign of letting up. Nor does the pressure to extract maximum value from every deal. As one M&A leader commented, “The cost of money has never been lower, the competition for deals has never been higher, and revenue synergies are playing a more significant role in the acquisition rationale.” But though their importance may be growing, revenue synergies are proving elusive to capture.

When we carried out a survey of 200 seasoned M&A executives from ten industries,¹ the majority reported that their company had fallen short of its aspiration for revenue synergies, with an average gap of 23 percent between goal and attainment (Exhibit 1).

Even when companies had succeeded in capturing revenue synergies, the process usually took considerably longer than cost synergies, on the order of five years rather than two (Exhibit 2).

Why is it so challenging to realize revenue synergies? The executives we spoke to cited a number of difficulties: setting realistic targets, changing salesforce behavior, executing across functions, measuring financial impact, and getting the organization to focus on the right things. Nevertheless, a few companies seem to have cracked the code.

To find out what it takes to be successful, we drew on detailed research, analysis, in-depth interviews with leaders who have been successful in capturing revenue synergies, and our own extensive experience.² From these sources, we learned that there are seven practices that matter:

1. Understand the sources of revenue synergies

In our experience, companies tend to be a little haphazard when identifying revenue synergies. Lack of clarity in understanding where the sources of value are means that significant pools of opportunity are overlooked. Capturing revenue synergies calls for a thoughtful approach that identifies, evaluates, and prioritizes opportunities along three dimensions (Exhibit 3):

• Where to sell. The most effective and direct way to capture revenue synergies is to take each company’s products and sell them to new or existing customers, launch them in new geographic markets, or sell them through additional channels. Our survey identified cross-selling as the revenue-synergy lever most often pursued (Exhibit 4), though not always with a successful outcome.

Common stumbling blocks include failing to ensure that the decision maker at the target account is the same for both company’s products; that sales reps have the knowledge, capacity, and incentives to sell the new portfolio; and that leaders are fully committed to the effort.

• What to sell. Creating new bundles and solutions, rebranding products, and developing new offerings represent a second source of revenue synergies that can offer promising returns. Bundles and solutions can provide quick wins by enhancing cross-selling to existing customers and attracting first-time customers with a more complete offering. Rebranding can be helpful if either company has strong equity with a particular customer group. Capitalizing on the combined company’s R&D capabilities and developing new products—whether line extensions or innovations—is a longer-term option and is central to the rationale in some deals.
• How to sell. Merging companies often cite the transfer of commercial capabilities and sharing of best practices as a source of revenue synergies. However, they rarely quantify the opportunity, perhaps because it materializes only when there is a clear capability gap between the companies involved. But mergers can be the perfect catalyst to inspire a broad-scale capability upgrade across commercial activities. When two large consumer electronics companies merged in 2017, for example, they soon realized that one of them followed rigorous pricing and discounting policies while the other gave sales reps discretion in deciding discount levels, holding them accountable only for a floor price. Immediately after close, the first company’s pricing policies were extended to the whole of the merged entity, and sales training initiatives were launched. The result was an impressive 4 percent increase in gross margins for the target product base during the nine months after close. More recently, some companies have developed expertise at applying advanced analytics to challenges such as territory optimization and next-product-to-buy recommendations.

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