March 30, 2023
Estimating One-Time Integration Costs
Small deals can be expensive. In today’s cost cutting environment, it’s increasingly important to accurately estimate transaction costs, and this EY article highlights that many buyers aren’t budgeting enough and may be ignoring key factors when estimating integration costs. EY analyzed M&A transaction costs of 229 deals between 2010 and 2022 and determined that transaction costs are often driven more by the degree of change required than the size of the transaction.
The article highlights the following key considerations when estimating transaction costs:
– The size of the targeted synergy and amount of change needed
– Severance and employee-related costs, which can account for more than 66% of integration costs in some deals—while they mean cost savings in the future, the cost of acquiring talent needs to be considered as well
– While transaction costs may range from 1% to 4% of deal value, deals over $10 billion often have lower average costs as a percentage of value
– Integration costs can vary significantly by sector
– Meredith Ervine