M&A Integration: Creating value from the R&D function

As the M&A landscape shifts from consolidation deals looking to deliver cost synergies from back office functions to more revenue synergies from go-to-market, the role of R&D as function and a source of synergies become more important. It is one of the functions which tends to enable both cost and revenue synergies from a deal.

The sectors that I typically operate in i.e., TMT (Tech, Media and Telecom), access to new capabilities, R&D and technical talent are often cited as the top three M&A drivers. R&D can be one of highest value creation functions if the integration is handled well, more often that not R&D tends to be set aside. Typically, insufficient resources are invested upfront in the due diligence creating integration challenges downstream.

Synergies in most functions can be realized within weeks (cost take out) or months (revenue growth), R&D in certain situations takes years to produce tangible but lasting value in terms of synergy. Executing a sound M&A integration plan can shorten the value creation cycle by several months or even years. Measuring value from R&D and tracking them over a period are critical, value drivers tend to be centered around four areas:

(1)Shorter development cycles

(2) Higher R&D productivity

(3) Increased speed to market

(4) Lower cost of development

M&A Integration should also be viewed as a catalyst to reduce complexities in the combined portfolio of the merged entities.

A few key considerations to maximize value from the R&D portfolio would be:

Opportunities for cost synergies:

o Too many products or features serving the same purpose

o Multiple platforms with inefficient leverage

o Unneeded and un-monetizable functionality and features

o NPI/EOL complexities i.e., new products co-existing with old ones for too long

o Insufficient leverage of designs and modules across products

o Rationalizing organization, facilities, systems, platforms and tools

o Unifying processes to create efficiencies

Opportunities for revenue synergies:

o Aligning clock speed of both R&D organizations with market demand

o Redefining pricing mechanism inline with product profitability

o NPI (New Product Introduction) and/or new feature introduction through unified roadmaps

o Aligning product fitment to reflect brand positioning

o Retaining key R&D talent

o Fitment of products and speed to market with existing channel structure

o Harmonized R&D pipeline, product and technology strategy

In my experience working with several R&D organizations, there are four distinct strategies once can pursue towards R&D Integration:

R&D Integration cannot be sidelined given the importance of products, speed to market and disruptive trends in the marketplace today, even though fully realizing R&D integration is more complex, higher risk and longer time to realization than other functions. In today’s fast paced and disruptive world there could be nothing worse than weakening your innovation capabilities through poor R&D integration. Keeping R&D departments separate being too cautious of culture and execution risk tends to diminish immediate synergy and further elongate time to value than partially or fully integrating them.

Executives must pay specific attention to R&D given it’s high impact on businesses and entire product ecosystems. This function cannot be sitting on the sidelines anymore, there is just too much at stake.