Maximizing Value Creation in Corporate Deals: The Role of API Platforms in Revenue and Cost Synergies.

According to KPMG “Corporates and private equity are finding that revenue synergies are an increasingly necessary component of value creation, yet they are not as widely leveraged or emphasized in dealmaking as cost synergies.” How can an API platform support value creation both in revenue and cost synergies?

Companies enter M&A with expectations that combined revenue will be higher, compared to what each company could make individually. The excess revenue earned is called revenue synergy. Revenue synergies are ranking very high amongst the most significant M&A value drivers. This can also be a major negotiation point as:

1. Revenue increase: The target company might negotiate for better premium because they expect that the revenue increase will be very significant after the merger for the acquiring company;
2. Increase in sales: Acquiring company can argue that increase in sales will mitigate the lowered acquisition price
3. Cost synergies: The acquiring company can also argue that cost savings from merging operations will add to the overall value of the merger.
4. Competition: The acquiring company can argue that the merger will result in increased market power and reduced competition, leading to higher revenues.
5. Market trends: The acquiring company can also argue that market trends, such as changes in consumer behavior or technological advancements, will positively impact the combined revenue.
6. Market expansion: The acquiring company can argue that the merger will result in expanded market reach, which will increase revenue through accessing new customer segments.

This is quite a sensitive topic as many companies try to avoid public annunciation of revenue synergies due to: lack of transparency in target’s operations, poor data visibility and quality as well as devaluation by the market if announced targets aren’t reached.

How can an API platform help here?

Most important points should be investigated to understand available options.

Revenue synergies

Utilizing an API platform, particularly with the implementation of an accelerated integration strategy, can result in a more efficient integration process. This approach reduces the time, complexity, and resources required to align the processes of the two companies. A key advantage is the ability for the acquiring company to establish the API platform prior to or during the merger, thereby allowing for a streamlined and pre-planned process integration upon completion of the merger. The quicker the integration of the two companies’ operations and systems, the sooner the realization of revenue synergies can be achieved. 

Timely integration is crucial in maximizing the benefits of the merger, including cost savings and increased market power, among others. A well-executed integration plan that prioritizes speed and efficiency can result in a more rapid realization of the anticipated synergies and a higher overall return on investment for the acquiring company. Maximizing revenue synergies is a critical aspect of mergers and acquisitions, and it requires a strategic approach to ensure that the benefits are fully realized. 

One of the best ways to maximize revenue synergies is through effective integration planning that emphasizes speed and efficiency. This means aligning the processes and systems of the two companies as quickly as possible to take advantage of any potential cost savings or market power.

Ultimately, maximizing revenue synergies requires a deep understanding of the strengths and weaknesses of both companies and a comprehensive integration plan that addresses all areas of the business. By prioritizing revenue synergies and taking a proactive approach to integration, businesses can unlock the full potential of a merger or acquisition and drive long-term success.

Cost synergies

Integration platforms can be a valuable tool for businesses looking to identify and benefit from cost synergies. Acquiring companies can prepare for rapid integration by setting up a technology landscape that allows relatively quick integration which includes both technical and business process aspects. It may be the case that the acquired company’s technological elements are better in comparison, but then having and API platform with ready process allows to swap the systems more easily as rest of the infrastructure is already in place. 

An API platform can help with cost synergies:

• Identification of redundancy in technology stack. By connecting different applications and systems, integration platforms can help businesses identify duplicate processes and reduce or eliminate them. This can result in significant cost savings, as it reduces the need for multiple tools and systems.
• Workflow optimization and manual processes automation. Reducing the need for labor-intensive tasks can free up resources, allowing businesses to redirect their efforts towards more strategic initiatives that drive growth and revenue.
• Advantage of economies of scale. By connecting multiple systems, businesses can leverage data and resources across different departments, resulting in cost savings and increased efficiency. For example, an integration (API) platform can help a business streamline its supply chain, reducing the cost of goods sold and improving profit margins.
• Savings on IT licenses and support. Once the redundancies are removed the licenses and support for no longer required systems can be reduced. In many cases the cost of one-time migration is less than accumulated licensing, labor and maintenance costs for the same, redundant systems. 
• Cultural shift. Having a streamlined process that connects both sides can improve on the culture shift as instead of following one of the ways of working, both can align their ways of working to a single, better way. Less conflicts, issues and discussions will result in streamlined processes, optimized systems and their costs as a result.

Competition and Market expansion

An API platform can help businesses save costs during a merger or acquisition by streamlining the integration process and allowing the companies to quickly align their operations and systems. This can result in cost savings by reducing duplication, eliminating inefficiencies, and streamlining processes.

However, in situations where the acquiring company can argue that the merger will result in increased market power and reduced competition, leading to higher revenues, cost savings may not be the primary focus. In these situations, the focus may be on maximizing revenue synergies and driving growth.

Primary focus should be on generating revenue and cost synergies while maintaining the flexibility required for future market expansion and delivering innovative products faster than your competitors. To achieve this, it is critical to leverage the API platform.

The API platform offers several key benefits. Firstly, it enables organizational flexibility and agility, allowing us to respond quickly to changing market conditions. Additionally, it frees up resources that would otherwise be tied up in technology stack implementation, enabling your company to concentrate on our core business functions.

By utilizing the API platform and integrating the most critical functions of both organizations, we can deliver new products and services more efficiently. This approach will help minimize the impact on existing systems and products, allowing you to deliver new services with minimal to no disruption to your customers.

Finally, by adopting a “building blocks” approach, you can significantly reduce the time required to deliver new services. This approach allows you to develop new products and services that can be easily swapped in, rather than relying on existing code that may cause issues for our users after minimal changes. It is important to prioritize revenue growth and cost efficiency while maintaining business flexibility and ability to deliver innovative products quickly and efficiently.

In conclusion 

KPMG’s observation that revenue synergies are an increasingly necessary component of value creation underscores the importance of using every available tool to create value in corporate deals. While cost synergies have traditionally been the primary focus, businesses and private equity firms must also look to revenue synergies as a critical value driver.

One of the most effective ways to achieve both revenue and cost synergies is by leveraging an API platform. By providing organizational flexibility and business agility, an API platform allows companies to concentrate on their core business functions and respond quickly to changing market conditions. This approach not only enables businesses to deliver innovative products faster than their competitors but also minimizes the impact on existing systems and products, resulting in cost savings.

Moreover, by integrating the most critical functions of both organizations and utilizing a “building blocks” approach, an API platform can enable the rapid delivery of new products and services, creating additional revenue streams and driving growth.

In short, an API platform is an invaluable tool for supporting value creation, both in terms of revenue and cost synergies. By recognizing the critical role of revenue synergies in deal-making, and using an API platform to their advantage, businesses and private equity firms can unlock new sources of value and gain a competitive edge in today’s dynamic business environment.

Contact us now to see how we can build our synergies together for future growth.