Synergy is the most overused word in M&A. It appears in almost every deal announcement and fails to arrive in a good share of them. We named the group after it, so we have had reason to think harder than most about what it actually means.
Synergy is not a spreadsheet line
In most deals, synergy means cost savings: one office instead of two, one finance team instead of two. Those savings are real, but they happen once and they are the easy part. If cost is the only case for combining two businesses, the combination is rarely worth the disruption.
Real synergy is when the combined business can do something neither could do alone: serve a client more completely, build a product that needs scale to justify, or win work a smaller firm would never be considered for.
How we test for it
Before we buy, we ask four questions.
Do the businesses serve the same customer? Not the same industry — the same buyer, with the same budget and the same problems. InnerMedia’s agencies all served independent schools, and the people buying from them were often the same people.
Are the capabilities complementary rather than duplicated? Brand design, web build and video production are three things a school needs. Three web agencies would be three versions of one thing.
Is there something only the combined business can build? For InnerMedia that was imHUB: a platform no single agency could have justified, but which the combined client base made worthwhile.
Will the founders and teams want it to work? Synergy is delivered by people. If they do not see the point, it will not happen.
How we deliver it
Synergy has to be designed, not hoped for. That means shared systems, a single management team, one way of contracting with clients and one product roadmap. It means accepting some short-term disruption — brands retired, roles changed — for a business that is stronger afterwards. And it means checking whether the thing the combination was meant to make possible is actually happening.
When it works, the result is not a bigger version of what was there before. It is a different business: more focused, harder to compete with and more valuable to its clients. That is what we mean by synergy, and it is the test every acquisition we make has to pass.