How to walk the tightrope between revenue growth and cost reduction in post-merger integrations
Integrating companies post-merger can be complicated and risky, not only due to the restructuring of the company finances, but also because of uncertainty within the labor force. Initially, all employees of the acquired company are consumed with trying to assess their usefulness, and consequently, their vulnerability. Since the administrative focus immediately after acquisition is typically directed at cost containment and increasing EBITDA, team members are left to form their own opinions about whether to stay with the company or look for other opportunities.
While this phenomenon may be unsettling, it certainly can be expected, and focus must remain on the retention or increase of sales revenue. According to a postmortem integration analysis conducted by McKinsey Analytics, approximately 27% of 100 M&A professionals polled, agreed that the combined areas of Sales / Marketing were most in need of improvement. (See graphic below)
This lack of sales focus stems from the following:
· Creating an urgency to show a fast return on investment. Integrations driven by Finance and Operations are most interested in the fastest route to an increased EBITDA, which is by cutting cost (as opposed building sales revenue, which bears fruit over time).
· Loss of existing sales people. Being commission-motivated, the sales force is more likely to look for other employment opportunities when faced with an uncertain future in their current position. Furthermore, sales people are often pressured by customers threatening to take their business elsewhere if the company seems unstable.
· Integrations in operational components such as sales force automation, customer relationship management platforms, and the slow, often complex deployment of changes needed in sales contracts, which are further delayed during acquisition.
As a firm focused on M&A integrations and being the Operating Partner to PE firms, we at Brainware Consulting have identified 5 steps essential to facilitating the successful integration of sales operations. We found that focusing on sales momentum; developing the importance of communication to the sales force (and to customers); understanding the key role-players in the sales organization beyond simply the revenue numbers; building a pro-active view of the integrated sales processes; and reviewing the customer portfolio are all critical areas to be focused on during the integration.
1. Retention of sales momentum
After the acquisition, investors quickly move their focus toward where a strong ROI may materialize. Investors understand that revenue growth is a much stronger indicator of future success in ROI achievement than is cost cutting. Therefore, implementing strategies that involve the collaboration between executives, sales, marketing and product teams—along with the support of operations and technical support—can bind team members of two companies together more than in the individual efforts of the two separate teams.
Early gains show that the sum is indeed greater than the parts and that promised gains could be real and demonstrable. This is valuable to customers who might view the merger with skepticism, and will consider this teamwork a clear indicator of solidarity, effectively eroding some perceived barriers.
2. The need to communicate
Understanding the importance of sharing information about the integration process with customers and the sales force is often overlooked. Members of the sales force feel that communication translates as a sincere interest in their success. However, many companies take the opposite approach and are surprised when post-merger revenue fails to meet expectations.
By communicating with customers, the integration team engages them in the process of forming a new, post-merger organization and creates a feeling of belonging. Conversely, lack of communication inevitably leads to speculation, chaos and isolation. With a merger, an opportunity presents itself to redress customer needs. Successful integrations examine an expansive view of the relationships with their customers. They focus on discussing issues such as contracting, delivery, and support. The key is to engage them in the success of the merger by addressing their needs and meeting their expectations.
3. Look beyond the numbers
Retaining top sales talent should be an obvious focus for every acquirer and often, the most effective way to determine who should be retained is by an analysis of sales performances. However, this practice does not consider the role of certain people whose contributions are less easily measured—but who are nevertheless invaluable to a high-performing sales team.
Good integrators look at the sales process holistically and consider those team members who are behind the scenes. By mapping the sales workflow—in detail—the role players are revealed, and the areas of potential breakdowns are identified. Caution must be used, however, not to reduce sales representatives and back-end role players simultaneously, as that will cause a disruption in the sales procedures.
4. A pro-active view of the sales process
It is vital to target the sales process for understanding prior to integration. The sales force needs to be confident in the knowledge that they are fully supported and that any new procedures will be implemented quickly, allowing the completion of their transactions in at least the same time frame as before (or faster).
Ideally, positioning of sales transactions and product delivery need to be simplified and/or clarified pre-merger. The goal must be that sales contracts are in place within seven days of deal closure and that revenue and CRM systems are integrated within 30 days of merger.
5. Review the customer portfolio
Along with revenue retention, one of the key focus areas in most successful acquisitions is to preserve all current customers. Because we want to maximize the return on time invested, the expectation that customers will be retained is part of what has been purchased. However, mergers provide an opportunity not only to refocus on the most important and/or promising customers but also to allocate resources to more fully meet their needs.