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Comparative Analysis of Keys to Successful Revenue Synergy Programmes - Essay Example

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Comparative Analysis of Keys to Successful Revenue Synergy Programmes

That’s the reason behind companies’ preferences for achieving cost synergies at the loss of revenue synergies. It is quite interesting to know why companies do not make additional effort into recognising and providing revenue synergies although investors may give an increased level of confidence to achieve cost synergies and they show heightened awareness over revenue synergies, therefore, offer an increased value premium. Need is to provide increased insight to investors on revenue synergies so that the market could present a complete perspective of the strategic reasoning and better value as an outcome (Griffin & Sheikh, 2012). Revenue increase, its criticality in valuation and its provision after acquisition can be derived by dividing various sources of revenue synergy, aimed through the acquisition, such as: expansion into a new sector; expansion into a new areas; cross-selling products and services; Advantages from intangible rights and technologies; and growth in current market share. There is need of a closer insight at the difference between cost savings and revenue increase as add-ons to success, in the context of the degree of total value of the acquisition coming through revenue synergies and through cost synergies. It needs to be clear whether a pre-completion synergy appraisal requires a detailed bottom-up process or it should be a top-down high level method. Before finalisation of the in-advance synergy appraisal, it needs to be confirmed whether synergy aims are clear to all leading stakeholders (Griffin & Sheikh, 2012). Normally, there is no ambiguity relatively in the difference of drivers and expectations of M&A functions changing with time and as per the ongoing economic environment. It is interesting to observe the market behaviour after the recuperation from the recession worldwide on whether companies are currently acquiring for achieving revenue synergies or cost synergies (Griffin & Sheikh, 2012). When acquisition values correctly show possible synergies from both cost savings and revenue increase and when these are of central concern to the management after the acquisition, the results are more possible to fulfil or exceed aspirations (Griffin & Sheikh, 2012). The Kraft acquisition of Cadbury was projected to offer $1 Billion in Synergies, as declared by the Kraft Foods. The incremental revenue synergies of $1billion were excluded of $750 million to be achieved in cost synergies by 2013. These revenue synergies, according to the Kraft, would be derived from the business increase in developing regions from one/fourth of the total revenue to approximately touching one/third after the merger. A statement was made by Kraft Foods’ CFO Tim Mclevish prior to an analyst conference in New York, stating that “This combination of factors gives us great confidence that our company will generate organic revenue growth of 5% or more, margins in the mid- to high-teens and EPS growth of 9% to 11%” (Tse, 2010). The confidence of the Company management is getting reflected from the acquisition, as it expects to become a long-run high-bracket performer in the food industry world wide. Presently, the Company is earning more than 50% of its revenue from outside North America, from countries like Brazil, China, India and Mexico, where GDP and demand growth are the most firm (Tse, 2010). Kraft CEO, Irene Rosenfeld, also holds the same opinion from the “unique and complimentary combination” of Kraft and Cadbury, stating that, “ ...Show more

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Topic: Comparative Analysis of Keys to Successful Revenue Synergy Programmes Although growth has been the leading objective of post merger integration to ensure value addition yet a number of companies pay least attention towards attaining revenue synergies…
Author : conroyrico
Comparative Analysis of Keys to Successful Revenue Synergy Programmes essay example
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