MERGE, Part 2: Estimate. Put a number on the work

Part two of five. Last week, Map found the risks, dependencies and hidden work. This week, Estimate puts a number on them.

Why the numbers drift

The research is consistent. One study of 236 large deals found one-off transaction costs typically run at 1% to 4% of deal value, driven mostly by severance and retention, property and IT (source). Integration costs are commonly underestimated by 20% to 30%.

Cost savings and gains the deal was priced on are usually captured at around 70% of plan; revenue savings and gains the deal was priced on at only 40% to 50% (source).

In a carve-out the technology bill is larger still: IT separation is often 40% to 60% of the total separation budget (source).

What Estimate is

Estimate quantifies three things before you sign: the cost to integrate or separate, the cost to run afterwards, and the one-off work in between. Every number is tied back to a finding from Map, so you can see where it came from and argue with it.

• Integration and separation cost, by workstream, with the assumptions written down.

• Run cost, the estate you will actually be paying for after Day One.

• Synergy realism, which savings are dependable and which need a haircut.

We wrote about the balance between spending and keeping what works in the cost of integration and the value of preservation.

Why this is merger synchronisation

Estimating before signing means the price, the plan and the people delivering it are working from the same numbers. That is what merger synchronisation means in practice.

Next week: Realise, turning the estimate into delivery. Consider for a second opinion on a number, ask for a free target assessment; we reply within a day.

E, for Estimate is core to us at Beyond M&A, as we synchronise the merger before it is signed, then run it—because every deal should be easier than the last.