M&A in Technology: Revenue and Cost Synergies in Tandem

The technology industry’s appetite for growth-oriented scope deals has been clear. But higher interest rates and changes in how tech companies are valued have now dramatically altered the rules of the game for tech scope deals, and companies need to change their approach to synergies. Debt covenants and a focus on margins and growth (vs. just growth) mean that tech acquirers must pursue meaningful cost synergies even in the scope deals that have a heavy revenue synergy thesis.

There are challenges to capturing revenue synergies, such as integrating products and generating cross-selling synergies (see “Tech M&A: The New Rules for Scope Deals”). But it’s even more daunting while also reducing costs. Success requires a mindset shift to focus on improving productivity. Here are tactical moves in four key areas.

• Sales. Companies need to maximize sales rep productivity throughout the integration. This starts by equipping reps on Day 1 for cross-selling synergies, and it requires supporting the salesforce with sales plays, better leads, and AI tools to help them sell more with less effort. Generative AI has transformed what is possible in go-to-market initiatives, but few companies have realized its full potential.
• Product. Companies are rightly hesitant to reduce engineering spending, but they can quickly develop an integrated product roadmap across both companies and aggressively reduce overlapping product costs. Another move is investing in coding copilots for further efficiencies.
• Post-sales. Integrations are an opportunity to rethink support and customer success to improve outcomes at a lower cost through integrated account coverage and automated support.
• General and administrative (G&A) expenses. There are always economies of scale in G&A, but integration provides an unlocking moment to use AI and process automation to completely rethink these costs and go after massive (25% or more) savings.