Mergers and Acquisitions – Proceed with caution

The opportunity for a merger or take-over can often be seen as a quick way to make a bigger and therefore stronger company. However, the resulting organisation and its benefits is not the sum of the constituent parts, but may often result in something less.

Mergers and acquisitions are never simple. At least 50% fail to meet their initial objectives and expectations – sometimes leading to expensive de-mergers. According to KPMG and Wharton studies, 83% of mergers and acquisitions failed to produce any benefits – and over half actually ended up reducing the value instead of increasing it. Businesses undertake mergers and acquisitions for a number of reasons, but all embark upon the process in the expectation of the benefits that they seek will be achieved. So why do so many fail?
Perhaps more time is spent on arranging a suitable and advantageous deal than is spent on
considering the actions necessary to implement the combination of two separate organisations successfully or its potential consequences

Businesses can be divided into two functional areas which may be described “Operations” and “Support”. “Operations” involves all those areas and activities directly and indirectly related to anticipating and satisfying customer requirements, while “support” provides the necessary resources, namely purchasing, finance, IT and personnel.

While the integration of differing and perhaps incompatible IT systems, can be a major problem, it is arguably the integration of the respective “operations” areas that result in the success or failure of the resulting combined organisation. The integration of purchasing, finance, and personnel may be difficult, but because these are not customer orientated organisations, the necessary change over may only require a change of procedure rather than a change of culture and attitude.

For the commercial manager responsible for getting and maintaining the income of the business, the merging, integration and consolidation of two previously separate business organisations, is more difficult, due to the variety of activities involved. Mergers and acquisitions produce a number of opportunities, but with potential consequences. The opportunities may include increased income and market share, as well as improved profitability through rationalisation of organisation and costs.

If the merged or acquired company is a competitor, there will be the advantage of having removed a competitor with the opportunity of gaining their previous customers. However, the integration and rationalisation of previously competing products, does not guarantee the retention of all the acquired customer base. While acquisitions and mergers may bring in new customers, there is no guarantee that the loyal customers of the acquired company will move their purchasing to the offered alternative products. With service based companies, their main asset is likely to be their knowledgeable and experienced personnel. If for any reason the personnel leave before or after the merger, then the acquisition may become an expensive “hollow one” where the desirable “asset” has effectively vanished perhaps taking their customers with them

Success of merger and acquisitions depends largely on the reaction of customers and the respective employees. All customers should be kept informed about how the changes will affect them, especially concerning the continuance of the product and services on which they have come to rely.

Commercial managers need to consider;
* In the new organisation which will be the dominant constituent, for personnel, culture and procedure?
* How are duplicated organisations to be integrated and rationalised? Is there an action plan?
* How should the respective product ranges be merged? – If products are scrapped or rationalised, their existing customers may go elsewhere, diminishing the projected increased customer base and market share.
* If the acquisition supplies a different market which may or may not be related, how is the commercial aspect to be managed? – Will it remain independent but reporting to the Commercial manager, or can part of the support organisation be merged and rationalised to achieve improved profitability and efficiency?
* If the acquired product range is in a wholly different market, then it needs to be evaluated in relation to the demand from its customer base and the market in general in terms of its profitability, its contribution to its profit centre, and the opportunities for profit and market development.
* If the acquired product range exists within the same market, it should be evaluated on its strengths and weaknesses when viewed as competitive products. – How do the acquired products compare with the existing range? Are these products direct competitors, – is so, which if any of them are any of them superior to the existing products, and could be incorporated into the product line? Are any of the acquired products complimentary to the existing products and could therefore be used to expand the existing product range?
* Different organisations have different business cultures and practices, which takes time to change. Sudden and significant change may demoralise staff, and cause resentment leading to distraction and confusion. Maintaining employee’s morale and commitment is essential to minimise the impact of the reorganisation on both the employees and the customers while maintaining the level of customer service.
* Maintaining the morale and commitment of employees by regular and effective communication helps prevent damaging and destabilising rumours. Customers should also keep aware of changes, to retain their confidence.

The success of a merger or acquisition depends of the clarity of the objectives, in terms of intended synergies and financial results, a clear plan for its execution, and the people from both organisations who implement the process. Thus the effective motivation and management of all staff from both constituent organisations, especially those involved in getting and maintaining business and income, is essential if the merger is to succeed and profitable income maintained and increased.
© N.C.Watkis, Contract Marketing Service 29 Nov 13

December 5, 2013  Tags:   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing development, marketing management, marketing metrics, marketing performance measurement, marketing ROI, performance management, performance measurement indicators, Uncategorized