Just a few weeks ago, two giant retailers, Kroger’s and Albertson’s, announced a $25B dollar merger. Like almost all companies that make these kinds of mega deals, much was written about the complementary skills and the “synergies” that, according to both companies, make the success of this marriage all but assured.
But we all know that the promise of value creation in mergers and acquisitions is anything but a sure thing. A Harvard Business Review study estimated that up to a whopping 70% of mergers fail to create value for stockholders and stakeholders! You can easily find some pretty strong analyses of why the failure rate is so high from credible sources like PWC, Investopedia and McKinsey.
The Most Overlooked Reason for M&A Failure
But in our strategic consulting work, see a huge reason for failures that doesn’t show up on PWC and McKinsey’s analyses: it’s about a failure to integrate the sales and marketing forces of the combined companies in a way that enables the realization of said synergies!
We are called into many post-merger organizations to try and help salvage these promised synergies before it’s too late. Here is what we find almost every time.
There is almost NEVER an organizational mechanism that helps the members of each organization’s commercial teams know exactly where, when and how to sell the other teams’ products. I know it sounds incredible, but it’s true.
Why Most Companies Fail to Commercially Integrate After M&A’s
Typically, each selling organization is given some “training” on the other organization’s products, and then are expected to know how to position them within their current, familiar portfolio in their accounts. The idea that each sales force will be excited to have something new to sell and will thus be motivated and able to figure out “what works” in their territories, is dead wrong.
This belief, and many companies’ obsession with inorganic growth has led to the following not so unusual scenario that we have been called into: a pharma company had 26 different brands of birth control pills in their portfolio. Reps presented the ones that they had some familiarity with, while the rest – many of which were better fits for the client situation at hand – died a slow death.
Here Is Secret #1 To Successful M&A Commercial Integration
What’s the solution? The first suggestion applies BEFORE your B2B company’s next acquisition: prune your overgrown garden of brands! Many B2B parent companies are reluctant to kill acquired brand names and leverage the equity of other healthier brands they own. This is almost NEVER due to any kind of customer sentiment – it’s often due to the emotional ties that legacy employees have to the legacy brands.
This is a bigger deal than you may think. Most B2Bs don’t have a significant brand building budget. Brand equity is largely built through sales conversations your commercial force has with B2B buyers. When these sales conversations are diluted because reps aren’t concentrating on presenting a few, powerful brands, it’s a huge opportunity lost.
Here Is Secret #2 To Successful M&A Commercial Integration
Once your brand portfolio is pruned, then your next acquisition can be commercially-integrated using needs-based segmentation of your customer base as an organizing mechanism.
By defining 3-5 needs-based segments across the newly combined companies, and then slotting each organizations products into their most appropriate segments, sales reps at least can know who from the new organization they can call in to their client accounts to present highly-relevant, highly-valued products and services. But we see that it does much more than this.
Through the needs-based matrix, sales people can see very specifically the synergies that executives hailed at the time of the merger. They know the precise customer situations and needs that their newly expanded sales bag helps fill. They become motivated to learn more about the acquired companies’ offerings because they see clearly how it is going to make them more valuable to their clients. We’ve seen it many times.
It’s how the pharma company finally made a success out of their untenable portfolio of birth control products. Each brand was allocated to one of six needs-based segments. Now the sales force knew which specific needs led to the recommendation of the appropriate brand, not just the 1-2 they were most familiar with.
Two Gifts That Keep on Giving To Your Organization’s M&A Success Rates
In our opinion, the secret to being one of the 30% of mergers that actually adds value lies in two steps: first, prune your overgrown garden of brands so that you can take full advantage of the best brand equity channel that most B2Bs have: the concentrated conversations of your legions of sales reps around a few, very powerful brands.
Second: instead of relying on product training alone and the skills of your salesforce to integrate new brands and products after a merger, use needs-based segmentation to organize the presentation of both companies combined offerings into the right situations at the right time.
As we write this just after Christmas 2022, we realize that these could be the gifts that keep on giving to your B2B organization in 2023 and beyond. Especially if your company has a tendency to rely on M&A activity for growth.