BrainTrust Query: Will You Be Fired Because of the New Acquisition?

Discussion
May 10, 2011

Through a special
arrangement, presented here for discussion is a summary of a current article
from Cultivating Your Customers, the M Squared Group blog.

In recent weeks,
three of my clients have told me about an acquisition that their organization
was making. Apparently, this is a good market to add scope and resources. Industry
leaders are turning around and looking to improve their short and long-term
profits by buying some of the competition.

Would you
believe that customer data never came up during the acquisition discussions
for any of these clients at all? The value of a company is really the projected
future value of cash flows that come from customers, right?

Yet, this situation
frequently occurs. Companies evaluate a lot of factors during due diligence,
but synergies in marketing are rarely considered. And we marketers are left
to pick up the mess.

Here are three things companies need to do after they
complete an acquisition:


  1. Figure out the rules of the road. Many times during an acquisition,
    promises are made to the existing marketing department about keeping the
    old brand for some time, retaining the existing marketing department, etc.
    It is critical that you find out what those deals are; often they are verbal
    ones during the agreement, so you have to talk to the people involved in
    the deal to make sure.
  2. The early days of a new relationship are critical and you must be sure
    to get off on the right foot. No matter what, you want customers to experience
    a smooth transition. In these days of social media, you have to make sure
    employees are comfortable, if not happy, to prevent a backlash that you do
    not want to deal with.
  3. Inventory your assets. Before you get going, make sure you know
    what you have. This inventory includes people, creative assets, relationships,
    and most importantly, customer data. Pay particular attention to assets
    that impact the customer experience of your newly acquired customers. You
    can always mock up a new logo, but losing information about when your best
    customers last purchased — that is an issue. Be patient — at
    the start, you will know far less than you don’t, but keep plugging
    away.
  4. Focus on relationship building. The temptation (and pressure from
    management) will be to start making money off the newly acquired customers,
    but let me urge you to focus on relationships at the start more than short-term
    profit. Relationships are like investments — make deposits early on
    and you can reap rewards for years to come. Remember, these customers know
    about the acquisition and they don’t know you. First impressions
    are hard to overcome so make yours about the brand, values, people and service.
    Then provide reasons for customers to come back and get to know about you.
    Tell them about the benefits of the acquisition and then make sure to highlight
    those benefits in future communications.

Discussion Questions: Do you agree that customer relationships are often a second thought in acquisitions? What’s the best way to retain acquired customers during and after an acquisition?

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16 Comments on "BrainTrust Query: Will You Be Fired Because of the New Acquisition?"

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David Livingston
Guest
6 years 7 months ago

If it ain’t broke, don’t fix it. Most often, when one company acquires another in retail the acquiring company assumes they will be loved by both employees and customers. That is usually a false assumption and sales soon tank about 15%. Employees and customers might actually be better off but both often become disgruntled because they don’t like change.

I disagree that the the acquiring company needs to sell the benefits of the acquisition. I think it’s best to just let the customer find out for themselves. And never tell employees that everything will remain the same. First, it’s a lie and second, it’s cruel. The best way to keep a good relationship with customers is not to get into their face with the arrogant message of “we are from someplace else and we are here to make things better.”

Ed Rosenbaum
Guest
6 years 7 months ago

Honesty and up front communications are the key elements to maintaining the existing client base. In some cases, key accounts should be made aware and kept in the loop during the transition. There should be little to no surprises. I am a believer in making your clients your partners. Let them feel they are a part of your decision process. They might even have a key thought to help along the path to completion.

Ian Percy
Guest
6 years 7 months ago
Not ever having been “employed” by a company and thus never “acquired,” I probably shouldn’t talk. But having helped a lot of mergers and acquisitions happen, I’ve pretty well come to the conclusion that one should hope to get fired. Same with downsizing companies. Far too often, the ones I feel sorry for are those who “survived.” First of all in an acquisition (there is no such thing as a merger) you can count on any positive cultural dimensions being obliterated or at least put into a death match with the other culture. For many decades it’s been known that what makes a company attractive is what is first to be destroyed. The success rate of acquisitions is pathetic. There really is no long-term thinking. I have a friend in the NBA who was acquired by a team just so another team wouldn’t get him. In spite of rather remarkable stats he sits on the bench. Many acquisitions are exactly like that. The acquired bunch sit on the bench. Finally, one comment about companies coming… Read more »
Matthew Keylock
Guest
Matthew Keylock
6 years 7 months ago

I’d like to see customer level due diligence in the acquisition process. The financial health of the business does not reveal the customer/consumer health of the business–you need granular, objective and smart analytics to do this.

Too often, businesses that have been making themselves ready to be acquired or merged have degraded their customer asset significantly by the time they are acquired. The chaos that ensues only erodes this further as they seek short-term or knee-jerk solutions to show some financial upside. By the time they look at customer/consumer engagement properly, the trust and loyalty that used to be resident in a brand can be long gone!

Ryan Mathews
Guest
6 years 7 months ago
Ian is right. Acquisitions are brutal. The acquired company almost always assumes its practices are best (after all they were the buyers) and the acquired company thinks exactly the same way (after all if they hadn’t been so good why would anyone have bought them?). The inevitable collision of two workforces each convinced they know “the truth” about the market and customers is almost universally painful and ugly. I remember many years ago in the aftermath of a mega round of M&A activity having one grizzled veteran (a mass acquirer) explain his theory of humane and successful acquisitions. “The kindest and most cost effective approach, and best thing you can do for the business,” he said, “is to take all of the acquired management team out at once, stand them against a comfortable wall and shoot them en masse. Then you can get on with the business.” Otherwise, it’s a war of attrition until the leaders of the acquired company leave or retire. A little harsh? Just think how long it took for the “General… Read more »
Gene Detroyer
Guest
6 years 7 months ago

There are many more issues with regard to acquisitions than just the customer considerations. In most acquisitions, no serious and objective analysis is done. Depending on the studies, anywhere from 55% to 85% of all acquisitions are failures when it comes to increasing shareholder value. Of the types of acquisitions, horizontals are the least productive. And yes, the CEOs should lose their jobs.

Studies show that the gains (cost savings and revenue generation) are almost always overestimated. The costs are often twice what they are projected to be. And the effect on customers is rarely taken into account as most of these acquisitions result in a net loss of the number of unique customers.

Most of these failed acquisitions are determined by a decision to make the acquisition followed by justification as to why it makes sense. An acquisition that does not generate sustainable competitive advantage will be a failure.

Bill Emerson
Guest
Bill Emerson
6 years 7 months ago
There was a terrific example recently of what happens when you make assumptions about customers, namely Macy’s acquisition of the May Department Stores. Macy’s took a “customers are customers” approach; changed the logo, changed the promotional rhythm, changed store policies and, in general, ignored the differences between Macy’s and May customer’s shopping patterns. The result was a multi-year disaster as May’s customers left in droves. Addressing this drop in sales led, ironically, to what has turned out to be a major breakthrough for Macy’s, the My Macy’s initiative, which seeks to recognize and react to the differences in customer preferences across our diverse country. Alternatively, when TJX acquired Marshalls, the decision was made to maintain the different marquees, keep two separate store operations groups, and separate advertising while combining the merchandising and back office functions. The result was an almost instant realization of the benefits of the acquisition. The primary driver of these acquisitions is usually financial–gee, look at the leverage we can get in SGA and within the vendor community. While these are indeed… Read more »
Susan Rider
Guest
Susan Rider
6 years 7 months ago

The business storybooks are littered with acquisitions gone bad and many times it’s either directly or indirectly related to customer relationships. Customer relationships are affected in many areas. The non-performance of logistics, merchandising, sales–almost every department can affect the customer relationship. For instance, a famous clothing retailer opened up a new, fully automated facility but couldn’t ship orders for 4 weeks. There are many examples but change management, risk management and communication management plans are critical to ensure customers are not affected.

If after an acquisition it’s business as usual and it is seamless to the customer, then communication may not be necessary, but this is rarely the case.

Bill Hanifin
Guest
6 years 7 months ago

Several issues are open for discussion in this article, but the title doesn’t speak to any of them for me.

Is customer data taken into consideration as acquisition value? Not often enough. One day we’ll do a better job of factoring in the customer lifetime value of accounts as a determinant of shareholder value.

Are customer relationships handled “well enough” and does the acquirer take care to learn and build before squeezing the account for short term profits. No generalization may be made here. It’s different in each situation.

Could acquiring companies take more care with the associates of the acquired firm, its marketing team, and brand positioning? Of course.

Sometimes common sense is the common denominator that is missing from business dealings. IMHO, if we all showed more value for each other on a human level, the rest of the deal would go more smoothly.

Camille P. Schuster, PhD.
Guest
6 years 7 months ago

Two companies have different cultures with different philosophies on most everything. The new culture may be one imposed by the buying company thereby requiring the acquired company to change OR the companies compromise on at least some issues creating a new culture thereby requiring everyone to change. In either case things do not stay the same. Very seldom is there a discussion of consumers during this process–not an evaluation of whether the two companies share consumers, have different consumers, or want to target both sets of consumers. If either company has been operating from the assumption of the lifetime value of consumers with a consumer-centric organization and the other company does not, there will be major changes and a loss of consumers if they become upset with different treatment. This factor is rarely considered during the merger or acquisition process but does have a major impact on how successfully the new company will move forward.

David Zahn
Guest
6 years 7 months ago
I have worked for the acquiring firm, worked for an acquired firm, and consulted to companies involved on both ends of that relationship and agree with much of what has been suggested above. P&G has the reputation of being very clear when it acquires another company that it is now a P&G brand and shall be treated as such. It is non-ambiguous and expectations are communicated in a very straightforward manner. However, the article mentions not only the employee issues (which is worth a discussion), but also the consumer issues–and that is a whole different kettle of fish. Consumers are not as invested in the “who bought what” discussions and which management team is in charge, etc. With the exception of perhaps certain businesses that may rub consumers/shoppers the wrong way on some moral or ethical ground, there is little concern about the parent company, subsidiary, or brand distinctions. The shopper wants product. Make the product better for the shopper, increase sales. To think it is more complex than that is to think far too… Read more »
Bill Bittner
Guest
Bill Bittner
6 years 7 months ago
I have gone through several acquisitions both from the perspective of the acquiring company and as the customer of a company that was acquired. In this environment of a slowly expanding economy and low interest rates, it is no wonder that strong companies are looking for viable acquisitions. If organic growth is not going to expand your top line, then you might as well borrow some money and start gobbling up your competitors. And I also agree with premise, that the impact on customers is often poorly considered. As an acquiring company, I have seen the enthusiasm for “economies of scale” overrun the unique characteristics of the acquired company which made it viable. Specifically, the effort to consolidate marketing departments left the new company without the unique image which had made it viable. Rather than the acquiring company gaining the benefit of a new customer base, they ended up confusing consumers and driving them to other competitors as the combined organization lost its identity. As a consumer, my most recent experience has been with the… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
6 years 7 months ago

Retail acquisitions are about cost-cutting, first and foremost. Retail acquisitions allow the acquiring company to extend their reach (geographically or by market segment), expand volume, consolidate overhead costs, and drive down marginal costs of doing business. That’s the business model for mass-market national retailing. It’s bottom-line driven. It’s about strengthening P&L’s and Balance Sheets. That’s the nature of consolidation in any industry.

It’s not about customer relationships or customer experience. It’s rarely about retaining brand equity in the acquired company. And it’s not about retaining duplicate staffs. Unfortunately, it’s not about people, because a lot of people invariably get hurt. But that’s the way it’s been in retailing for literally decades.

Ed Dennis
Guest
Ed Dennis
6 years 7 months ago

Customer relations are a function of product performance first and relationships second. If a customer is using a product and it is meeting his needs, and pricing, terms, etc., were favorable, a new owner should have few worries.

The only exception would be if an existing relationship moved to a competing product. That could cause problems. I know in my own life I was faced with this challenge. A knowledgeable sales person can provide information to a customer that can result in a significant decrease in billed prices and/or terms. While not losing business, the company certainly loses profit and profit is why they exist.

Displaced personnel can always find ways of supplying information to competition that can enhance their position in the market. There is no non-compete agreement that can protect a company from retribution by an employee who was treated unfairly.

Ralph Jacobson
Guest
6 years 7 months ago

As has been proved by numerous supermarket mergers/acquisitions, the best way to retain acquired customers is to put corporate pride and bigotry aside, and let the acquired stores run seamlessly in the eyes of the customers, but integrate the operations, systems, etc., as soon as possible. Every day there is not a globally integrated enterprise is one more day of lost earnings. Keep the banner on the stores the same as they were prior to the M/A.

Warren Thayer
Guest
6 years 7 months ago

Great advice here. I agree that acquisitions are brutal. Having been through a few of them, as the “acquired,” and having “survived,” I think a firing squad would have been more humane. There’s opportunity here to learn and to find synergies, but that is rarely done because egos get in the way.

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