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The biggest factor behind lost revenue synergies is a failure to carry out an effective commercial integration program
For companies that manage mergers well, cost synergies are often intuitive & tend to come quickly. The cost savings can be significant & are often more than enough to justify a merger on their own. For this reason, cost savings tend to get most of the management attention during the Business planning & execution phases of mergers. Revenue synergies can deliver significant benefits as well, but they tend to be harder to achieve & therefore may receive less attention. That lack of focus can destroy significant value. Far too often the M&A focus is on achieving cost synergies, the culture, people, processes & ways of working are often overlooked. It’s paramount for companies to have a clearly planned vision of success to support the achievement of M&A revenue synergies. Companies do not describe clearly & briefly the deals primary sources of value & its key risks, so they don’t set clear priorities for integration. Some acquirers seem to expect the target company’s people to integrate themselves. However, others do have an integration program office, but they don’t get it up & running until the deal closes. Still, others mismanage the transition to line management when the integration is supposedly complete, or fail to embed the synergy targets in the business unit’s budget. Such problems are likely to lead to missed targets or an incapability to define whether the targets have been hit or not.
The biggest factor behind lost revenue synergies is a failure to carry out an effective commercial integration program. Acquiring the growth benefits of a merger requires conscious management focus & a structured program that protects existing revenue & drives sales.
Many of the companies staff, the integration team with those who happen to be available or are part of special-projects groups, often including part-time team members who lack the necessary skills. An insufficient management staff often results in a failure to prepare the commercial organization for a seamless integration on the first day of the merged company’s existence. To be successful, the management staff needs an integration leader with complete accountability, allocated full-time for the duration of the effort & with the appropriate seniority to guide the integration strategy. The rest of the team should consist of highly skilled players who can devote the necessary time & are deeply networked within their respective organizations.
Large M&A deals create value is as much about knowing whom to involve & when as it is about knowing how to capture synergies. The greater the deal, the more critical the need to ensure confidentiality by keeping the team small during the early stages of planning. Such teams may lack breadth, but they’re sufficient to produce a rough valuation that allows planning to move ahead. As smart as many executives are about keeping their M&A teams small in the beginning, they make the wrong trade-off as they get deeper into the diligence process. As a result, they lay out a framework for integration & develop synergy estimates based on the insight of a small, isolated team without the buy-in they need from critical stakeholders. These include not just the executives who will carry the heaviest burden of integration execution but also the full complement of a CEO’s direct reports.
The staff requires safeguarding carefully that, bottom-up logic supports an estimate of potential revenue synergies & that they are achievable within a reasonable timeframe.
This requires together probing within the sales organizations to grow a vibrant basis of facts & detailed marketing research to answer such questions as Do the sales teams from both companies sell to the same decision maker within a given customer? Is the nature of the sales, whether more transactional or strategic, the same in both organizations? What are knowledge & selling skills required to effectively cross-sell products? Is the customer adoption process & therefore the sales cycle similar in each? The integration team should supplement & test this analysis by digging deep into both organizations data as well. This allows the merged business to develop a complete picture of deal value & how to capture it & helps to detect & resolve conflicts between the two sales organizations.
Leaders may understand in principle, they often fail to follow through with those actions that ensure success. For example, executives are consumed either by the quarterly priorities of hitting their existing targets so they delegate the integration planning to the commercial-integration leads. In addition, there is often a lack of clarity around who has what role at the leadership level. These issues create a reluctance to make decisions or engage deeply.
Many of the establishments a clear governance structure made up of the future commercial leaders to be most helpful. This committee should meet regularly to review & make decisions on robust, fact-based recommendations developed by integration teams. For one media merger, the committee comprised the business-unit presidents, leaders of each sales force, & the commercial-integration leader. The governance model it established was a detailed mechanism to drive clear, regular, & effective decision making.
The most common source of revenue disruption is a failure to resolve lead responsibility for overlapping customer accounts & sales territories. Sales teams operate best under conditions of certainty & clarity, particularly with regard to role, leadership, account assignments, quota & target attainment, & compensation. The commercial-integration team starts by charging a clean team with creating a combined customer database. It may require a lengthy process of matching customer names, reconciling assignments on each overlapping account, & creating appropriate rules of engagement & incentives for collaboration before the new organization & new account assignments are rolled out.
The most effective communications are clear, relevant, & timely. Best-performing companies take this to heart in communicating to both their own people & their customers. Communications to commercial employees need to address their three most important M&A-related questions: Will I have a job? Who will I report to? What is going to happen to my compensation? Lack of transparency & slow decision making, especially in consolidations with territory & customer overlap, drives front-line talent loss & a resulting drop in sales.
Customer communication is also a differentiator that many acquirers fail to use effectively. In fact, they commonly adopt an incorrect mindset, communicating only when one has answers to their questions. Topmost players, in contrast, have a clear communication strategy, reach out purposefully, & keep an open channel with customers to reassure them that the company is engaged & focused on avoiding disruption to services & offerings. Some even establish a customer advisory board during the integration planning & execution phases in order to really tap into customer thinking rather than rely on assumptions about customer needs & preferences.
Mergers can be unsettling for sales groups, especially for topmost performers. Merging companies that achieve their revenue goals make it a priority to implement a plan to retain top commercial talent. Engaging with these individuals is just as important as identifying them & mix of tactics that allow the integration team to be responsive to individual employees is most effective. It can range from formal nonfinancial & financial retention packages, to clear communication of roles, to a simple lunch or coffee with an executive that reassures the employee that she/he is a valued member of the team.
The differences between two legacy commercial organizations can be substantial. However, officials in M&A situations frequently overlook or fail to pay enough attention to cultural issues. The most important principle here is to address those differences in practices, processes & capabilities that truly have an impact on the value at stake & at risk. An understanding of the particulars of each commercial organization is the starting point for any journey toward successful integration.
As an instance, when two healthcare organizations were merging, it became clear in the integration process that there was a difference in what the term target meant. In one organization, it was a stretch goal deployed to encourage new thinking; in the other, it meant an absolute must hit expectation that, if missed, could impact compensation. Early on, this simple semantic misalignment, which reflected very different cultures, caused a period of unproductive confusion about basic expectations, requiring the team to clearly define the vocabulary as well as a new set of metrics within the performance system.
Key cultural differences are identified through a robust cultural diagnostic involving both qualitative & quantitative measures. A few of the culture-management practices that are critical for commercial organizations include the degree of sales-force autonomy as well as the compensation structure & how it ties to desired sales behaviors & roles, such as hunter versus farmer, generalist versus product expert, or industry specialist.
Any merger has the potential to deliver massive value that’s generally the reason for the merger in the first place. However driving organic growth through the commercial function requires focus & commitment on those activities that can actually make it happen.