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How to assess synergies in M&A using process mining data

Lari Numminen

July 10, 2023

In the field of Mergers and Acquisitions (M&A), understanding and leveraging synergies is an absolute necessity. According to Harvard Business Review between 70-90 percent of acquisitions fail1 to achieve the desired results and McKinsey estimates that up to 10 percent of large mergers are cancelled because of lack of synergies or value creation.2

But how can you calculate the synergy potential of mergers and acquisitions accurately?

One answer lies in process mining, an advanced new form of data science used to map the processes, transactions and work happening across the enterprise.

In this article we'll go through how and when it can be used - but let's start first with some M&A fundamentals.

Decoding the concept of synergies in M&A

The reason why most M&As occur is when there are potential synergies in combining the resources of two business operations.

Synergies describe the combined value that arises when two firms merge. This can be measured as the enhanced operational efficiency, wider market reach, or potential for cost savings.

In the landscape of M&A, synergies can be categorized into three primary types:

Revenue synergies

Revenue synergies occur when the merged entity is able to generate more revenue than the two independent companies could have managed separately. This could be due to cross-selling opportunities, improved market reach, enhanced product offerings, or stronger pricing power.

Cost synergies

Cost synergies are perhaps the most straightforward and commonly pursued type of synergy in M&A. They arise when the merged company can eliminate duplicate costs, leading to operational efficiencies. Cost savings can stem from shared administrative services, consolidated manufacturing, bulk purchasing power, or reduction in workforce.

Financial synergies

Financial synergies occur when the merged entity can achieve a better financial profile or lower cost of capital than the individual companies. These could result from improved borrowing rates, tax advantages, diversification of revenue streams, or improved credit rating.

Each of these types of synergies can significantly enhance the value derived from a merger or acquisition. However, their successful realization hinges on diligent planning, careful execution, and continuous post-merger evaluation. This is where data and analytics can make a difference.

The significance of process mining in evaluating synergies

Process mining is an advanced analytical approach to business process analysis that gives a granular view of the actual processes within an organization.

Why is process mining so popular in M&A data analysis?

Process mining uncovers process and work efficiency by automatically extracting event log data from the different software and tools used in business operations. It traces the journey of a process, identifying how to streamline operations, improve efficiency, and reduce costs.

The potential of process mining software in M&A cannot be overstated. It can be a fast and data-driven way for businesses to map out their operations and realize synergies post-acquisition. By identifying inefficiencies, process mining can ensure a smoother integration of operations and create a platform for synergy realization.

Benefits of process mining for different mergers and acquisitions stages

The strategic application of process mining during the various stages of an M&A transaction can greatly influence the transaction's overall success. Here's a detailed overview of how and when it can be most effectively employed.

Pre-merger: process analysis and due diligence

During the pre-merger phase, process mining helps in comprehensive due diligence by providing an accurate snapshot of the target company’s operational landscape. By visualizing actual processes, companies can gain a more realistic view of the target company's operational performance, identify potential synergies, and uncover hidden inefficiencies.

Merger execution: mapping and aligning processes

During the execution stage, process mining plays a crucial role in mapping and aligning processes from both companies. It helps in integrating the best of both worlds, smoothing out differences, and facilitating a smoother merger execution.

Post-merger: process optimization and continuous improvement

In the post-merger phase, process mining proves its worth by helping the newly formed entity optimize its processes for continuous improvement. By identifying process inefficiencies, redundancies, and bottlenecks, the company can implement measures to streamline operations and realize merger synergies.

Step-by-step guide to assess synergies with process mining

You do not need to be a data scientist to take advantage of process mining solutions in mergers and acquisitions. As an enterprise leader you can work with software vendors or process analysts to execute a step-by-step method for assessing synergy potential:

  1. Identify the processes to be merged: Identify the overlapping and complementary processes in both organizations. Understanding these processes allows for a comprehensive evaluation of the potential synergies.
  2. Deploy process mining tools: Use robust process mining tools to visualize the current state of these processes. The transparency these tools provide allows for a detailed and accurate analysis.
  3. Analyze the process analytics: Look for bottlenecks, inefficiencies, and unnecessary steps in the process maps. These could be potential areas where synergies can be realized.
  4. Simulate merged processes: Use your process mining tool to assess or even simulate the potential outcomes of merging identified processes. This helps anticipate challenges and measure potential synergies.
  5. Iterate and optimize: Process mining is an ongoing effort. Regularly evaluate merged processes to identify additional optimization opportunities and maximize synergies post merger.

Key considerations for successful process mining project

Process mining is not a silver bullet for M&A success. Keep in mind a few key considerations for ensuring a positive outcome.

To start, it's worth investing in the reliability of your data and analytics. For successful process mining, businesses should ensure the accuracy of event log data, invest in a robust process mining tool, and train their team in the use and interpretation of process mining data.

Having an understanding of synergy potential is one thing, investing in delivering synergies is a different game. For an effective outcome, you need to leverage the data and insights mined with an outcome-focused process improvement plan.

Don't forget the human aspect. While process mining data can give you a snapshot into the effectiveness and alignment of processes, the built up knowledge and experience of your workforce goes a step beyond. Be sure to include your domain experts in analysing and executing the process improvement opportunities gained through mining.

A well-planned process mining initiative can pave the way for successful M&A and the realization of synergies. It's important to focus on reliable data, process execution and include your workforce in the process improvement planning.

Consider task mining and/or hybrid process intelligence

If you're working on a tight schedule it's good to also consider that process mining can take a considerable time to implement and execute. For faster results, you can consider a couple alternatives.

Task mining

Task mining is another powerful technology that can provide valuable insights for assessing M&A potential.

Instead of IT system event logs, task mining typically gathers insights directly from the workstation or desktop of the employees. As a result, task mining is typically 3-5 times faster to implement than process mining and can provide similar insights to the effectiveness of work and task execution.

The downside of task mining technology is that they often take a task-focus to process discovery, leaving potential blind spots to the connections of process events happening within multi-step workflows, or across different teams.

As with any tool, the key to leveraging task mining tools lies in how effectively it is deployed and how accurately the data it provides is interpreted and utilized.

Hybrid process intelligence

The latest solution to consider using in M&A process synergy evaluations is a hybrid of process and task mining, simply called process intelligence software.

Process intelligence takes elements of both process and task intelligence and in the case of Workfellow, utilizes an advanced AI-powered technology called Work API to provide rapid and accurate process analytics and insights within a matter of days.  

Process intelligence can be leveraged in combination of traditional data mining solutions. In M&A situations it is probably the fastest way to assess synergies due to an effortless plug-and-play implementation.

Bottom line

The assessment of synergies in M&A with process mining requires a comprehensive understanding of both the merging entities and their processes. If you're looking for a data-driven and systematic approach to assessing synergy potential, process mining may be a good option. The powerful insights offered by process mining can enable businesses to optimize their operations, reduce costs, and enhance the overall value of M&A.

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Written by

Lari Numminen

Chief Marketing Fellow