How to Get Results Quickly After a Merger or Acquisition

Summary:

Delayed and ineffective commercial integration can turn a good deal into a loser, because sales growth ultimately determines whether a merger achieves its value-creation goals. To create value, mergers need top-line gains: More sales to more customers, expansion into new territories or market adjacencies, new products and services to sell to existing customers. But compared to other areas of post-merger activity, the commercial engine starts late, operates uncertainly, and often runs out of gas before reaching its goals.

Time and again, mergers fail to achieve their potential because management moved too slowly to realize the deal’s top-line growth potential. Acquirers are often slow — shockingly slow — to integrate their sales, marketing, customer experience, and other commercial functions.

Consider, for example, a recent merger in the telecommunications industry that was largely predicated on the belief that the new company could generate $500 million in new growth from increased wallet share and expansion into new international markets and industries. After the deal closed, however, the commercial initiatives got delayed by six to 12 months while management prioritized items like back-office restructuring, headcount reduction, and synergies in third-party spending for IT and similar services. The hoped-for gains — the core of the deal thesis — didn’t begin showing up till well into the second year.

Or consider an insurance company that made a series of tuck-in acquisitions of small, niche providers with the aim of getting a 12% revenue boost from cross-selling each acquisition’s products to the other’s customers. A year later, gains from cross-selling were less than 5%. A major cause? The integration of various customer relationship management (CRM) systems had left the sales team and senior management unable to see where the gaps, opportunities, and successes were.

Delayed and ineffective commercial integration can turn a good deal into a loser, because sales growth ultimately determines whether a merger achieves its value-creation goals. Sure, there will be important cost benefits — duplications in overhead, technology, facilities, and more — but those often do little more than cover the premium a buyer pays for control, or (in the case of a competitive sale) get built into the price. At the end of the day, to create value, mergers need top-line gains, too: More sales to more customers, expansion into new territories or market adjacencies, new products and services to sell to existing customers.

But compared to other areas of post-merger activity, the commercial engine starts late, operates uncertainly, and often runs out of gas before reaching its goals. We’re frequently engaged in the latter stages of mergers, particularly when revenue begins to decline. We typically observe unsynchronized sales strategies and ambiguous customer priorities, coupled with limited synergy between products and services.

These experiences have also shown us the underlying causes of these delays and what acquiring companies should have been doing. With M&A activity picking up — Goldman Sachs reports a year-over-year 34% increase in the first quarter of 2024 — and high interest rates making delay costlier, it’s more important than ever that private equity and corporate acquirers leave the deal table with underwriteable, ready-to-go plans to make deals pay off through growth — and carry those plans out quickly.

5 Challenges That Delay Commercial Integration

Integrating commercial operations is difficult. In our work with clients, we see five interlocking challenges:

Limited visibility pre-closing

Buyers start out at a disadvantage because they can learn less about customers in the due diligence process than they can about operations, finances, and payroll. Even after closing, it may be hard to see a complete picture of the new company’s business with a given customer because of different, not-yet-fully integrated systems and processes.

Complex commercial system and data integration

Sales technology integration can be a slog; typical CRM integrations take six or even 12 months — too long to wait before realizing value. But without a single, integrated view of the customers, it’s hard to see, plan, execute, or measure other activities.

Organizational and commercial operating model challenges

It’s difficult to realign account coverage, deal terms, and decision rights. Who calls on whom? Who gets to decide discounts and terms? These questions reveal deeper, hard-to-hash-out issues of coverage model, incentives and compensation, sales and service support, forecasting, and the like. In the telecommunications merger described above, there was no aligned process for revenue forecasting; instead, projections came from legacy teams at each company, without a process to discover or discuss potential positive revenue synergies.

Cultural differences

Add cultural issues to the challenge of organization design. With all the reshuffling and restructuring back at headquarters, the last thing management wants to do is unnerve the sales force — the engine of revenue. Yet the sales force is already distracted, knowing that things will change, but not how. Confusion about compensation, coverage, and measurement can cause sales reps to disengage or even defect. An entrepreneurial outfit might have to fold itself into a large, process-driven organization, or learn to live in the bare-knuckled, leveraged environment of private equity. The two companies might have been rivals, adept at denigrating the others’ offerings; one might have been an established brand, the other a challenger; a sales team that sold products might now be asked to sell solutions. Yet they might wait months for cross-training.

Anxious customers and eager competitors

And then there are customers, who are not passive players waiting for NewCo to get its act together. Customers are usually the last to know about a transaction, and mergers unsettle them, particularly in B2B where sales cycles are long and customer service and success are major selling points. Nothing strikes fear more than seeing customer confidence (and revenue) decline, especially if the leadership team is caught flat-footed. Competitors are just as anxious to use uncertainty in their favor by actively poaching employees and customers.

Daunted by these difficulties, management can become paralyzed and convince themselves that things will be simpler later (they won’t) or that picking low-hanging fruit will make it easier to reach higher boughs (it doesn’t). They can even issue the order “hands off the sales force,” worried that hasty action will hurt revenues at the worst possible time. Inaction, however, makes things worse as patchwork processes, restive reps, and confused customers take their toll.

How to Integrate Faster

Precisely because commercial integration is a journey of 1,000 miles, it’s important to get started quickly. Here are six key workstreams that need to move in concert and at pace:

A commercial integration core team armed with an execution roadmap for Day One readiness

To ensure that commercial integration remains a priority, it’s important — before close — to form a team of chief revenue officers and sales, finance, IT, and operations leaders from both sides. (For B2C companies, marketing should be on the team, too.)

This group sets the pace and agenda for the integration. It should set out immediately to define the scope of the commercial integration, outline the target operating model, and establish timelines and ownership for the other workstreams. It needs to be led by experienced executives who know how to do this despite having imperfect information, because some details (like specific customer information) cannot be shared before close. This team also needs to develop a Day One agenda including rules for sales motions, plans for customer communication and outreach to priority accounts, and a list of quick wins. This pre-Day One alignment is essential for accelerating commercial integration and critical for avoiding “unforced errors” that affect customer confidence and top-line performance.

Channel, geography, and segment optimization

It’s almost inevitable that the two companies will have made different decisions about direct vs. indirect sales, priority channels, and customer segmentation. Those need to be ironed out quickly with a data-backed approach, and from the top. One way to speed the process is to decide how to handle accounts with the highest customer lifetime value, then let those decisions shape the rest of the discussion. That in turn needs to redirect marketing efforts, ensuring both sales and marketing teams are targeting the right prospects.

Sales force redesign, account coverage rationalization, and incentives and metrics optimization

Aligning territories and defining roles and responsibilities across sales teams is vital. This includes uncovering overlaps in customer coverage, identifying upsell/cross-sell opportunities, clarifying organizational structures, identifying subject-matter experts, and assigning ownership of regions or product lines. This in turn should produce an adjusted coverage model for customer service managers and account executives. This workstream also needs to deal with the tricky task of compensation, metrics, and bonuses.

Sales and operations planning integration

S&OP will change in the new organization. Getting it right begins with restating core product offerings and aligning on who sells what, then creating close collaboration between sales and production to produce and manage forecasts, track performance, and perform pipeline hygiene. This involves detailed, data-driven customer relationship management with a focus on delivering value for customers so that sales teams are aligned around the most important targets, not the easiest ones.

Commercial system and data integration

Because technology integration is slow, it’s crucial to start quickly and to ensure the tech teams understand the business priorities. These will vary depending on commercial strategy. For example, if both companies share the same major accounts — say, a merger of two consumer-goods companies that sell to the same big retail chains — then getting those accounts synced up should come first and drive the rest of the process. Whatever the priority list, it’s important not just to integrate the data but to identify training needs and establish clear ownership and strong project management.

Customer profitability analysis and maximization

All these efforts will be more effective if they culminate in a rigorous analysis of customer profitability. Most companies will have done some kind of “whale curve” analysis, which, as Robert S. Kaplan and others have shown, usually reveals that 20% of customers (or products, depending on how you do the analysis) generate between 150% and 300% of total profits, the bottom fifth lose 50–200%, while those in the middle break even. After a merger, almost every customer’s or product’s position on the whale curve will shift, as both revenues and the costs of generating them change. Even a rough first cut will help you focus your efforts and guide you away from inadvertently doubling down on no-profit or low-profit areas (as in the old joke, “we’re losing money on every sale, but making up for it in volume”).

There is a bigger reward down the road, perhaps for NewCo’s second year: Using a merger to learn the true economic profit of sales — that is, revenue minus all costs, including the cost of the capital required to produce the revenue. Most commercial functions naturally focus on income statement items. But acquisitions change the balance sheets, too, bringing in new assets, new debts, new equity, and new working capital numbers, which can radically change customer profitability and value creation.

. . .

Commercial integration is harder to plan and execute than most items on a post-merger integration checklist and critical to value creation. It’s technically difficult — for example, in bringing CRM systems together. It’s analytically difficult — in understanding where profitability truly lies in the new company. It’s socially and psychologically difficult — affecting sales and service teams, company culture, and customers. Because it is all these things, it requires a seasoned team of leaders, not just analysts. When a team gets it right and proactively pushes clear and interconnected work streams early on between signing and closing, it can cut the interval between good intentions and tangible results in half. And that really matters.

Explore AAPL Membership benefits.