Is 'synergies' as a separate bucket MECE?

MECE Mergers&Acquisitions
New answer on Aug 31, 2022
2 Answers
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Anonymous A asked on Sep 25, 2019

Hi Everyone,


As I am approaching my final round at McKinsey, I have started to become fussier about my issue trees and whether they are MECE.
I came across this 'textbook' M&A case on one of the business school books:
Your client is a concrete manufacturer and is considering acquiring a small local firm in the concrete manufacturing industry. What factors should be considered?
So, my approach has five buckets which are 5 micro-hypothesis:

  1. The client current position is suited to an acquisition
    • current customer segmentation and regions of operations etc
    • Capabilities:
      • We lack capacity and we want more or new channles/markets
      • We have not mastered some new process
      • We have not quite reached ecnomy of scale
    • We can afford it
  2. The target company is a good fit and we can generate value
    • We can generate substantial synergies
      • Revenue syn...
      • Cost savings syn...
    • The company is not overvalued
    • There is no obvious cultural clash
    • The cost of integration is known and acceptable
  3. The demand (industry) is big and growing and justifies the acquisition
    • Growth rate, growing segments and stuff along those lines
  4. There are no hurdles to this acquisition
    • No regulatory obstacles
    • Competitors are not expected to retaliate
  5. There are no better alternatives
    • Joint venture?
    • Other target companies?

What do you think? I see a lot of people have a separate bucket for Synergyes. Is it wrong to have it in the target section? I look forward to your feedback.

Thank you!

Best,

Andy

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Vlad
Expert
Content Creator
updated an answer on Sep 25, 2019
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

First of all there is no "Right" or "Wrong" approach:)

Secondly - text books solutions, even from the best b-schools are rarely well written, since they are written by caseclubs of these schools, not by the professors or experienced consultants. I would say that at the top b-schools people are not well-prepared in general since the interviews are pretty relaxed with the students getting 2-3 offers easily.

Thirdly, in real life you should start with clarifying questions:

  1. What's the measurable objective of the client - NPV, ROI, etc
  2. Clarifying the business model
  3. Any question that can help you narrow down your structure

Let me give you an example:

1) If the objective of the client is to calculate synergies, then you should have a structure around synergies (revenue synergies, Cost synergies, financial synergies, costs and benefits)

2) If the objective is different, then you can ask the clarifying question about the synergies. "Do we expect any potential synergies?".

  • If the answer is yes - that should be the part of your structure. Where exactly - depends on the objective. If the objective is valuation (NPV) - then it should be a separate bucket since the NPV for synergies is calculated separately.
  • If we expect no synergies - you don't even put it in your structure

Best!

(edited)

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Simon
Expert
replied on Aug 31, 2022
50+ successful coachings / Ex-Mckinsey JEM & Interviewer / Industry + Engineering background

Dear A,

in general a good structure can be evaluated by a certain depth and breadth. The “depth” should be at least 3-4 levels while the “breadth” should cover the entire solution space. You can cross-check this with the MECE principles (For details see respective article on Preplounge), but the CE (collectively exhaustive) part is basically defining your breadth.

Finally, make sure to check for inter-linkages in your structure and point them out.

Simon

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Vlad gave the best answer

Vlad

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McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School
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