Synergies when introducing a new business line

Question

A mobile virtual network operator that purchases wholesale mobile services from top carriers & provides cellphone services under their own brand to end users is considering entering the energy (electricity & gas) space. It wants to become a “virtual” energy retailer and resell energy. What are some synergies from this move?

Rev:

1) Price: seller power

-Can charge more (if they are only one in market providing energy & telecom reseller services)

2) Quantity of sales:

-Cross-selling opportunity across consumer base

-Product bundling option

Costs:

1) FC:

-Consolidated IT/systems

-Consolidated labor, HR, customer service etc

2) VC:

-Buyer power: Reduce transaction fee (billing fee paid to credit card companies) due to higher volume of transactions from larger consumer base

-Commission: renegotiate commission structure with providers of electricity and telecom due to larger consumer base

-Economies of scale: better price for software licensing costs?

Anything else I could add given they aren't acquiring another company

Answer 1

This is great! you've done a nice job here.

I'm sure there's more (there always are), but your structure is correct AND your list of options directly tie to the situation + industry.

Nice work!

Answer 2

Yes, your approach is correct.

Let me add that the major benefit you have in this initiative is that you can leverage an existing customer base and channels to sell your product. So you can either say that you will sell more, and that customer acquisition costs will be lower (i.e. costs related to channel and promotion actitivities).

Would probably add that churn rate is likely to be lower (you have more loyalty as customers would have to cancel two services, not just one).

Answer 3

Brilliant! I like what you have done.

Answer 4

Hi there,

First of all, congratulations on the solid structure and great ideas on synergies!

This is indeed an interesting question which is probably relevant for quite a lot of users, so I am happy to provide my perspective on it:

In addition to your already very detailed list of synergies, I would advise you to add lower customer acquisition costs in your “VC” bucket for the company's energy business.

In case you want a more detailed discussion on how to best approach and structure (M&A) case studies, please feel free to contact me directly.

I hope this helps,

Hagen