Guest Article: How to Improve Post-Merger Integration
Keystone's Jeff Alvis and Christophe Jeannin say losing customers is one of the reasons that deals fail
Customer defections are a key reason for why more than half of all mergers fail to deliver the intended improvement in shareholder value. While merged companies focus on the quick capture of synergies, they typically lose sight of customers – just when the risk of losing those customers is at its highest.
There are reasons for why this happens, and chief among them is a leadership vision focused in the wrong place. Acquisition plans are usually driven from the inside out, and the emphasis is on cost synergies, process alignment and employee communications. While discussion about the commercial aspects of the deal are appropriate, we find the customer is often an afterthought rather than the touchstone by which all processes are meant to deliver optimal results. Companies tend to be more sensitive to internal sales staff issues and concerned that changes will alienate the sales force, and decide to “work on that later” when it comes to customers. In our experience, it is critical to address the latter earlier rather than later.
Here’s why: Regardless of the case and the strategic models used – from stand-alone to significant integration – we believe using an “outside-in” approach yields better results and mitigates that critical post-close risk of customer attrition and revenue degradation. M&A plans need the marketing and relationship strategies in place, ideally created with an integrated team approach, from the outset. This sets the communication tone and expectations from the beginning so that, once in motion, everyone understands the process goals. It is much harder to address them later.
We often hear our clients say, “I’m trying to reel the sales team back in and it’s really hard. I should have integrated them earlier in the process.” The sales staff, assuredly, thinks the same thing. While the overall commercial and customer plans should be consistent with the deal strategy drivers, there are a few key principles and actions to consider in each case. We find that well-informed communication of the key actions, and active discussions during the diligence and pre-close phases, delivers results with an engaged corporate team and increased customer retention and growth.
Putting the plan into action relies on deceptively simple principles. First consideration goes to the customers who are naturally curious as to why this deal was done and will expect to hear something. That’s true for frontline staff facing these customers too, and in a vacuum of information they are likely to assume the worst. Strong communications and actions as soon as practical are important, and although they’re absolutely and obviously necessary post-close, transparency requires a head start.
The stronger the customer overlap and deeper the integration, the more important it is to act quickly and be flexible as changing conditions warrant, so talk – and listen – to your sales team and customers
The “Must-Do’s” for All Deals
Implement a clear and concise set of internal and customer communications, including as a minimum:
- Key messages on the deal and its benefits
- How the new company fits into the organization, including branding
- FAQ documents for customer-facing people
- Plans for direct communications – calls and visits – by key executives with major customers
As part of these strategies, you’ll need to determine how the sales team will fit into the organization, even if the strategy is to continue with a stand-alone company. Be sure to schedule a sales meeting to share information, and exchange product and market information and intelligence. Compare and discuss compensation plans to identify potential issues and take any corrective actions. Develop a shared identity through aligned documents, business cards, and email addresses that strengthen brand value.
It’s important to include all voices in a successful M&A process, but that doesn’t mean a loss of control or accountability. Rather, a comprehensive strategy requires oversight all the more – so designate one person for the development and execution of this plan, keep it aligned with the overall M&A strategy, and make sure that everyone knows who the designee is and how to stay connected with this person. Always identify any at-risk customers and ensure they have special attention immediately after close.
More ideas for deals with modest overlap and integration
If your process includes any modest overlap and integration, there are some additional considerations that will enhance your success, with a little foresight and planning. First, identify the key points of contact for each customer and identify any potential change, and create common company and product fact sheets and key selling points to keep the sales team well equipped.
Develop a team to identify and execute cross-selling opportunities and a game plan, which will deliver a smarter strategy than if you leave each sales person to execute one – which also means it will actually happen. Likewise, it’s advisable to increase the executive-level interaction with customers and create “executive sponsors” for key relationships. Set clear expectations for actively engaging with these customers through periodic visits, phone calls, and the development and execution of an action plan.
Some elements that this team will want to consider, and that are important to note, include:
- Aligning compensation plans to accommodate “business as usual” while being flexible enough to address specific initiatives, such as cross-selling. These objectives, and funding for them, need to be in line with the integration strategy and objectives.
- Create a customer information document on inventory, pricing accounts receivable, etc.
- Identify and change specific internal processes to better serve customers, because now is the time to add value to value! For example, if customers will receive shipments from a different plant location, can they expect the same level of service, documentation, visibility and more.
- Cross-train your contact teams to answer the phones and resolve issues in a consistent manner.
What if there is significant customer and product overlap, and deeper integration?
If this describes your M&A deal, begin by creating a “one face to the customer” model and designing the processes to support it. That may mean a revamp of all docs from orders to invoices to payment, so that process is simplified, efficient and friendly to the end user.
Other ideas include coordination of internal resources to seamlessly route or respond to customer requests and to ensure it by developing a new account-team structure that is dually accountable to internal units as well as the customer. Businesses also need to consider a pricing structure review, designed to minimize the price sensitivity impacts in customers likely to act on that basis.
Incorporating some or all of these steps into your M&A process gives you the best chance of a good experience to all parties – external customers, stakeholders, B2B clients – even when there are clear mismatches between the original corporate sales teams or their executives. But the real goal is protecting revenue and value in the M&A process, and doing so with the customer at front and center.
Jeff Alvis and Christophe Jeannin are directors at The Keystone Group, focusing on M&A, profit improvement and business strategy.
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