A small piece of larger processes I created & implemented at Rockwell Collins. Best practices research firm Corporate Strategy Board concluded this to be an "innovative and potentially pivotal approach to strategy" beyond just the aerospace & defense industry.

1. © 2006 Corporate Executive Board. All Rights Reserved.
Corporate Strategy Board®
Rockwell Collins Teleconference
Becoming the Buyer of Choice
Revenue Synergy Line-Item Forecast
Discussion with Rockwell Collins

2. 2© 2006 Corporate Executive Board. All Rights Reserved.
A Perfecting Market for Cost Synergies?
…and are improving cost synergy
capabilities at a faster rate…
Improvement at Valuing and
Capturing Synergies Over Past Five Years
Corporate Strategy Board Pulse Survey, 2005
Source: Christofferson, Scott A., Robert S. McNish, and Diane L. Sias, “Where Mergers Go
Wrong,” The McKinsey Quarterly (2004); Corporate Strategy Board research.
Continual Frustration
“There’s a perfecting market for cost synergies. Everyone can take costs out of a target, so all my
competitors look at it the same way. Most of the cost synergies end up being bid away to the seller.”
VP, Strategy and Corporate Development
Consumer Products Company
…but could be approaching
diminishing returns relative
to revenue synergies
Diminishing Returns
to Synergy Improvement
Illustrative
Companies are better at valuing
and capturing cost synergies
than revenue synergies…
Ability to Capture
Estimated Synergies
McKinsey Postmerger-Management Survey, 2002
0%
50%
100%
0%
50%
100%
86%
52%
n = 77.n = 92.
Companies That
Capture at Least
70% of Cost
Synergies
Companies That
Capture at Least
70% of Revenue
Synergies
0
5
0
2.5
5
3.48
2.82
n = 43.
Valuing and
Capturing
Cost Synergies
Valuing and
Capturing
Revenue
Synergies
Time
Capability
Revenue
Synergies
Cost
Synergies
Large
Improvement
No
Improvement
Average Member

3. 3© 2006 Corporate Executive Board. All Rights Reserved.
A Recognized Revenue Challenge
Senior executive reluctance
to include revenue synergies in valuation…
Percentage of Deals That Include Revenue Synergies in Valuation
Corporate Strategy Board Pulse Survey, 2005
…stems from a lack of confidence in the
organization’s ability to estimate and capture synergies
Revenue Synergy Forecast Challenges
Lack of Executive
Confidence in
Revenue Synergies
Widespread Skepticism
“Our senior team is very skeptical of revenue synergies. We find it extremely difficult to use revenue
synergies to convince executives of the merits of a deal.”
Deputy Director, Group Strategy and Corporate Development
European Financial Services Company
n = 63 companies.
53%
47%
Fifty-three percent of deals do
not include revenue synergies in
valuation…
Lack of
Experience
Insufficient
Information
Forecasting Method
Lacks Rigor
Estimates
Inaccurate
Breakdown in
Capture
…and in deals that do,
revenue synergy forecasts
are often missed.
Do Not Include Revenue Synergies
Include Revenue Synergies
Source: Corporate Strategy Board research.

4. 4
Revenue Synergy Line-Item Forecast
Company Profile
Rockwell Collins, Inc., (NYSE: COL) is a worldwide leader
in the design, production, and support of communication
and aviation electronics for commercial and government
customers. The company delivers industry-leading solutions
in communication, navigation, surveillance, display, flight
control, in-flight entertainment, information management,
and simulation. In addition, Rockwell Collins operates 60
service centers worldwide, offering repair, overhaul, service
parts, field service engineering, and training.
Selected Statistics
• FY2005 Revenue: US$3.445 Billion
• FY2005 Earnings: US$396 Million
• FY2005 Employees: 17,000
Source: Rockwell Collins, Inc.; Corporate Strategy Board research.

5. 5© 2006 Corporate Executive Board. All Rights Reserved.
Toward a More Rigorous Forecast
Rockwell Collins Leverages More Detailed Sources of Information
from the Bottom up to Improve the Accuracy of Its Revenue Synergy Forecast
Revenue Synergy Forecasting Process
–
+
Brainstorm Major
Synergy Opportunities.
Gather Aggregate
Sales Data.
Estimate an Aggregate
Synergy Amount.
Embed Synergies in
Profit and Loss Goals.
Goal
Gather Granular
Sales Data.
Assign Synergy Line
Items to Specific Sales
Team Goals.
Goal
Apply Synergy Identification
Framework.
Top-down perspective
causes forecast to lack
specificity
–
+ + +
–
Conventional
Revenue
Synergy-
Assessment
Process
Rockwell
Collins
Revenue
Synergy-
Assessment
Process
Misses vital informationOverlooks some potential
synergies, both positive
and negative
Does not target or
measure sales capture
of specific synergies
No basis for effective
feedback
–
–
Preparation to Submit
Nonbinding Offer
Due Diligence Valuation and Negotiation Deal Close and Integration
Enables focus on individual
accountability to ensure
capture
Provides detailed feedback for
continuous improvement
Refines detailed estimates with customer
knowledge and past performance
Build a Bottom-Up, Fact-Based
Forecast on the Line-Item Level.
Classifies synergies in a
disciplined manner
Collects detailed
information critical for
forecasting
+
Data
Discovery-Driven
Synergy Identification
Bottom-Up Build Sales Action Planning
Data
•
•
•
•
•
•
•
•
Source: Rockwell Collins, Inc.; Corporate Strategy Board research.
Forecast Actual
Past Synergy
Capture
Target Data
SalesOps Forecast
Predicted Revenue

6. 6© 2006 Corporate Executive Board. All Rights Reserved.
From Strategy to Synergy
Using a standard framework
to identify revenue synergies…
Revenue Synergy Opportunity Identification Framework
From Rockwell Collins’ Perspective, Illustrative
…to guide go/no-go decisions
and surface key uncertainties
Decision Meeting to Submit Nonbinding Offer
Rockwell Collins
…enables grading of
synergy opportunities…
Initial Revenue Synergy Evaluation
Rockwell Collins, Illustrative
“Executive Revenue Synergy Check”
• Do the synergies support the deal’s
strategic rationale?
• What are the sources of uncertainty in
conceptual revenue synergy assessment?
Markets/
Channels
Existing
New
Primary Revenue Synergies Benefit
• RCI flight simulator sold to
Europe
High
• Target’s avionics product
sold to RCI U.S. market
High
•
Medium
•
Low
Deal Sponsors
• BU COO
• BU VP GM
• BU Deal Champion
• CD Manager
CFO
CEO Sr. VP CD
GC
Outcomes
Conceptual
Revenue Synergy
Assumptions to
Verify
Decision to
Submit Offer or
Not Submit Offer
Existing New
Products/
Services
For revenue synergies representing key value drivers,
the deal team creates synergy-specific due diligence
work plans to collect specific data for later forecasting.
Rockwell Collins deliberately
delays quantifying synergies
until more information can
be obtained.
RCI product sold
through target’s
channel
Negative synergies
from loss of
target’s current
sales to RCI
competitors
Reputation-related
synergies
Negative synergy
from product/
customer overlap
Adopting best
practices
Target’s product
sold through RCI
channels
…
Source: Rockwell Collins, Inc.; Corporate Strategy Board research.

7. 7© 2006 Corporate Executive Board. All Rights Reserved.
Bottom-Up Fact-Based Forecasting
Operational Performance Data and Insight from the BU Sales Force Improve the Accuracy of Revenue Synergy Forecasts
Development of Revenue Synergy Forecast
Rockwell Collins, Illustrative
Source: Rockwell Collins, Inc.; Corporate Strategy Board research.
Operational Market Forecasts
Underpinning RCI Strategic Plan
1 Reconciliation of Target’s Forecasts—
Adjust forecasts and identify product,
customer, and program overlaps.
BU
Marketing
BU FinanceBU Sales
Target Data
Detailed revenue synergy assumption
data collected in due diligence
2 Estimation of Incremental Sales—
Solicit frontline sales input to estimate
synergies.
BU Sales Account
Manager
Sales
Manager
RCI synergy capture past
performance
Forecast Actual
3 Senior Adjustment of Synergy Estimates—
Revise estimates based on past ability
to execute.
BU
Head
BU
GM
BU
Finance
Incremental Value
Capture Adjustment
Expected Revenue
Synergy
30%
60%
$9 M
$4 M
•
•
•
•
•
•
(30%) ($3 M)
•
•
•
•
•
•
Total Expected
Revenue Synergy
$23 M
Incremental EBITDA $4 M
40%
X
Baseline Rate
of Value Capture
Incremental Value
Capture (Synergy)
40%
10%
30%
60%
•
•
•
•
•
•
60%/30% (30%)
•
•
•
•
•
•
Sales
Opportunity
Total Value of
Opportunity
Only in
RCI Plan
Program A
Customer B
$30 M
$10 M
Only in
Target Plan
•
•
•
•
•
•
In Both
Plans
Product C $10 M
New to
Both Plans
•
•
•
•
•
•
Target’s baseline sales
forecast is first reconciled to
RCI market forecasts…
The BU leadership
and deal team
adjusts forecasts
based on past ability
to capture revenue
synergies.
…then each opportunity is assessed for synergy potential and
assigned a probability of success by frontline BU salespeople with
experience in terrain and close relationships with customers.
Expected revenue
synergies are
included in
valuation, which is
then presented to
executives as a basis
for the bid price.

8. 8© 2006 Corporate Executive Board. All Rights Reserved.
Revenue Synergies They Can Count On
Ability to assign revenue synergy line
items to specific individual sales goals…
BU Sales Action Planning
Rockwell Collins
…increases executive confidence in including
revenue synergies in its pricing strategy
Bidding on Revenue Synergies
“What I really like about this process is that the
discounting of revenue synergies is done in a rational,
thoughtful way. We are more fact-based than we
were. We’re closing the confidence gap between
revenue and cost synergies. Almost every time now,
the expected value of revenue synergies we present
to our executives is accepted as a baseline for
valuation.”
Barry Abzug
Senior VP
Corporate Development
Rockwell Collins
An Executable Synergy Capture Plan
“Since we implemented the line-item forecasting, we’re
finding our integration plans are more concrete, more
accountable, and more executable than before. Putting
revenue synergy capture in the form of our operating plan
makes executives more willing to support higher valuation,
as they know we hit our operating plan consistently.”
Steve Belland
VP, Acquisitions
Rockwell Collins
Incremental Value
Capture Adjustment
Expected Revenue
Synergy
30%
60%
$9 M
$4 M
•
•
•
•
•
•
(30%) ($3 M)
•
•
•
•
•
•
Total Expected
Revenue Synergy
$23 M
Incremental EBITDA $9 M
40%
X
Baseline Rate
of Value Capture
Incremental Value
Capture (Synergy)
40%
10%
30%
60%
•
•
•
•
•
•
60% (30%)
•
•
•
•
•
•
Sales
Opportunity
Total Value of
Opportunity
Only in
RCI Plan
Program A
Customer B
$30 M
$10 M
Only in
Target Plan
•
•
•
•
•
•
In Both
Plans
Product C $10 M
New to
Both Plans
•
•
•
•
•
•
Revenue Synergy Forecast
Product C—Value Capture
Action Plan
Action
Steps
Sales
Target
Owner Due
Date
1.
2.
3.
4.
Customer B—Value Capture
Action Plan
Action
Steps
Sales
Target
Owner Due
Date
1.
2.
3.
4.
Program A—Value Capture
Action Plan
Action
Steps
Sales
Target
Owner Due
Date
1.
2.
3.
4.
$9 M Jess
Phil
Jane
Jane
7/2/06
1/3/07
30/8/07
30/1/08
Source: Rockwell Collins, Inc.; Corporate Strategy Board research.

9. 9© 2006 Corporate Executive Board. All Rights Reserved.
Source: Corporate Strategy Board research.
Key Propositions
To improve executive confidence in revenue synergy assessment, drive
line-item-level evaluation by sales force experts, then directly link sales team
goals to synergy capture estimates.
• Leverage operational planning processes to create line-item-level
forecasts of revenue synergies.
• Use sales force knowledge to test the individual line-item synergy
estimates and assign a probability of capture to improve the forecast’s
accuracy.
• Adjust sales force assessments of revenue synergies based on past
experience in capturing similar sources of value in prior deals.
• Embed each line-item revenue synergy assessment into that sales team
or individual’s specific operational performance goals to increase
probability of capture.
Rockwell Collins Summary: Revenue Synergy Line-Item Forecast

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