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M&A success and synergies are regularly discussed in the practical literature, but synergies are typically treated as a static concept (how do you get them?) with little discussion of financial bet acquirers create in paying an up-front premium. We describe the importance of investor reactions, the nature of the challenge, and discuss synergies as a process with five rules of the road covering M&A strategy, diligence, culture, leakage, and validation and reporting. Potential acquirers must be better prepared before they commit these major capital investments, involving multiple stakeholders throughout the process of creating the value they are promising with M&A.

We report the important results of our 24-year study on acquirer performance, the persistence of investor reactions, and the role of the acquisition premium to support our position that synergies must be trackable and defendable before and after deal announcement. From our collective author experience of advising on many hundreds of synergy programs over the years, we distilled our experience based on the common lack of understanding of what is required by executives, and when, and what we have seen greatly improve the odds of success in achieving sufficient M&A synergies.

Major findings include: 1. Initial market reactions are good predictors of the future, most deals persist, positive or negative, and there is a big spread of returns between winners and losers with losers paying the highest premiums; 2. Premiums additions to target’s growth value and may require larger performance increases than acquirers expect; 3. Synergies are a dynamic process involving multiple stakeholders from becoming a prepared acquirer in M&A strategy, building an early synergy roadmap during diligence, understanding that culture and change issues launch at announcement and preparation must begin long before, anticipating leakage, and validating and reporting post-close.

Our study is original covering three waves of mergers over 24 years; we formalize the synergy challenge created by paying a premium with respect to the already existing growth expectations for the target; we make clear that ultimately validating synergies begins with M&A strategy and diligence through to the workings of an Integration Management Office, anticipating synergy leakage, and preparing employees for change.

Negative market reactions to a deal are often driven by a gap between what management believes and what investors perceive, so boards need useful tools to stress test deal economics, the messages CEOs give the market and the level of preparation required to immediately begin delivering on market expectations.

Four simple analytical tools and a set of questions can help boards drive more informed discussions about potential M&A deals.

Before committing to a major deal, both parties will need to assess the effect on each company’s shareholder value should the synergy expectations embedded in the premium fail to materialize.

Empowered Post Merger Integration teams must be created with clear roles, responsibilities and reporting relationships to make effectual recommendations for top management to ratify.

Before approving a deal and recommending it to shareholders, directors should ensure that senior management offers a clear business case and has an operating model’and a plan’ in place. Four simple analytical tools and a set of questions can help boards drive more informed discussions about potential M&A deals.