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 a function and a source of synergies becomes more important. R&D function tends to enable both cost and revenue synergies from a deal.

The sectors that we 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 Role In M&A

R&D can be one of the highest value creation functions if the integration is managed well. Typically, insufficient resources are invested upfront in the due diligence, leading to 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. Moreover, measuring value from R&D and tracking them over a period is critical.

The R&D functions include value drivers that 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

The M&A Integration process 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:

· Too many products or features serving the same purpose

· Multiple platforms with inefficient leverage

· Unneeded and un-monetizable functionality and features

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

· Insufficient leverage of designs and modules across products

· Rationalizing organization, facilities, systems, platforms, and tools

· Unifying processes to create efficiencies

Opportunities for revenue synergies:

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

· Redefining pricing mechanism in line with product profitability

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

· Aligning product fitment to reflect brand positioning

· Retaining key R&D talent

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

· Harmonized R&D pipeline, product, and technology strategy

In our experience working with several R&D organizations, there are four distinct strategies one can pursue toward 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, has 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 (R&D production function) separate and 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 its high impact on businesses and entire product ecosystems. This function cannot be sitting on the sidelines anymore, there is just too much at stake.