Most, if not all, mergers and acquisitions are driven by the investment thesis that the sum of the parts is greater than what either company could achieve individually. Synergy calculations show how one + one will equal more than two – and hopefully as much as three. These synergy calculations are presented to the Board for the appropriate financial approval. Typically, the valuation side of this model will include the expected cost savings of the two combined organizations but will not include the anticipated revenue synergies as part of the value of the targeted enterprise. The rationale being that revenue synergies are less tangible and harder to achieve so they should not be foundational to the valuation of the deal. Any revenue synergies achieved are deemed to be pure upside - added value that can be offered to shareholders/owners of the acquiring company.
An overemphasis on cost savings out of the gate
A likely and frequent unintended consequence of this frame of mind is that there is a significant focus on cost savings synergies at the onset of the integration process. While sales integration, customer revenue protection, and cross-selling opportunities are not off the table, they are typically put into a single work stream in the overall integration effort. Often, the revenue synergies are tracked, but receive less scrutiny and attention from the working team as compared to their counterparts, the cost savings synergies.
Dissatisfied customers quietly turn to alternatives
There is clear evidence that the best employees will leave the combined organization if the “what does this mean to me” message is not communicated during the first days of the integration. Similarly, customers who are left guessing post-announcement as to what this means to them will vote with their wallets. Too often, initial integration efforts for customers are considered complete if a brief introduction is delivered that provides:
Early customer satisfaction and market expansion are key
- An explanation of why the combination happened
- Changes (if any) that will be made to their account representative
- A comforting sound bite about being in good hands with the newly combined entity
Early integration efforts that focus on mapping out strategies and execution efforts to concentrate on customer wins and market expansion can counteract these unintended consequences. Thoughtful and early execution plans centering on the following activities should become the norm for the execution of integration efforts:
- Customer interactions: Ensure that every customer touch point pre-transaction is mapped, maintained or reestablished in a very accessible manner to all customers of the combined organization.
- Messaging: Create a continuous—but not superfluous—messaging program built from the eyes and voice of the customer that will effectively and consistently deliver reassurances that product quality and service levels are a primary focus of the newly combined organization. Provide tangible demonstration of the aforementioned words as a fundamental guiding principle of the integration.
- Sales: Institute a very deliberate and intentional transition of overlapping sales territories and sales personnel that is rooted in objective methods.
- Product roadmap: Communicate transparently and thoughtfully to the customer base a plan around any product rationalization coupled with consistent product roadmap messaging.
- Customer service: Ensure that there is a an early tangible win for the combine customers via improved service levels, bundled pricing which provides them with more economic value, faster product development giving them added feature functions to their basket of goods and service.
- Training: Prepare a thorough and comprehensive product and service training program for the newly combined sales organization to ensure that any cross selling opportunities are enabled at the onset.
- Incentives: Develop an incentive sales plan that promotes cross selling, and implement it within the first thirty days.
- Reporting: Implement a reporting mechanism within the first thirty days that will anticipated any challenges of source data to ensure that timely commission reporting happens in a manner that keeps the sales force engaged.
A keen focus on consistent messaging to the customer, an offensive approach to sustaining the existing revenue streams as well as expanding them, and ensuring that the sales integration is a key component of the early efforts of the combined organization will, in all likelihood, result in creating more value from the combined entities.
For more information on how to maximize revenue potential post-transaction, please contact Jeff Liter.