Mergers and acquisitions benefit companies in many ways, including economies of scale, access to capital, deeper employee skill sets, revenue diversification, tax benefits and risk reduction. But to create true value, mergers should lead to top-line growth. The key is to prioritize your sales plan over operational integrations.
In commercial integration, each company defines its pathway to more sales through the other’s channel (not out of obligation but from expertise). Each company also must fully support the other’s pre-communicated intentions and design. The two entities are not competitors but partners whose growth has become intertwined.
Integrating Technology
Leila is the president of a small regional savings bank in southeastern Massachusetts. The bank is aggressively marketed and employs competent loan originators. It has a loyal customer base and a reputation for personalized service. Still, it was losing market share to digitally savvy competitors. In 2018, the bank took a minority stake in Jane’s financial technology (fintech) startup to counter that problem.
Since 2007, with the advent of the smartphone, demand has grown for digital documentation, online payments, e-statements, and integrated online dashboards. Leila’s bank had not kept up with industry trends, which was a bad look to potential customers, especially the affluent-millennial leads the bank was trying to attract who viewed these functions as standard expectations and not simply nice-to-have bells and whistles.
Jane’s fintech company was located on Route 128 in the suburbs of Boston. That stretch of highway is known as “America’s Technology Highway” and has been home to many major technology companies. Jane’s company was developing the infrastructure for a new mobile payment solution. However, it ran behind the production and funding capacity of competitors like Venmo, Cash App and Zelle. Jane needed customers and capital.
The merger allowed Leila’s bank to quickly integrate Jane’s technology into its banking services. The merger also was partially an acqui-hire for the bank. Leila now had access to Jane’s technology-literate team that could build a broader digital platform and create training and education for bank employees and customers. This aspect of the merger allowed the bank to attract and close customers who were not only tech-savvy but also expected their bank to operate as if it was keeping up with the times. Additionally, the increased productivity allowed the bank to expand its profit margins and, eventually, its geographic footprint.
Jane’s company benefited from the merger by gaining access to capital and an established customer base. Jane took a seat on the bank’s board of directors, broadening her fintech company’s access to banking expertise, which allowed her company to refine and scale its technology more expeditiously than it would have on its own.
The challenge for integrated companies is not the intention of growth but the delay of it. The need to expedite sales growth post-merger is especially true today with the Wall Street Journal prime rate (the interest rate banks charge their highest-rated customers) at 8.5 percent (compared to about 5 percent before the pandemic).
However, it is not uncommon that after a deal is closed, expanding sales get deprioritized behind back-office restructuring, replacing software and workflows, and implementing other synergies.
Cross-selling opportunities
Pratt owns a financial planning and investment company in upstate New York. Throughout 2021 and 2022, he acquired insurance agencies intending to cross-sell his financial planning services to insurance customers.
His goal was to increase the number of financial planning clients by one-fourth, which would increase that revenue by a similar amount (even more, in the aggregate, considering cross-selling goes both ways). However, financial planning gains from cross-selling have been immaterial; insurance sales declined.
Pratt delayed the sales aspect of the integration to focus on important cost benefits. He focused on integrating customer relationship management software, information technology services, and facilities.
Pratt estimated that those synergies reduced the combined companies’ total annual costs by 3 percentage points of combined revenue. That is significant, but to create real value, mergers should increase revenue, not just reduce costs. It is critical to prioritize sales synchronization and cross-selling plans. The maximum value of a merger or acquisition occurs when the synergies between the companies’ separate products and services are defined.
Sales synchronization can occur more quickly if efforts are made to define workflows pre-closing. There should be a single view of the process to discover cross-selling opportunities.
Who calls on whom? What triggers those calls or introductions? What, if any, incentives will be offered to employees? Who gets to decide on discounts or terms? Who is responsible for the sales? Who services the client? Answering those questions may uncover cultural misalignments that need to be addressed. Is one group yet consultative, but the other process-oriented? Does one group understand the need to follow up with prospects, and is the other used to order-taking?
What if …?
Many business owners are reticent to risk a potential transaction going public before closing a deal out of fear that it may ward off new clients. Or, if the deal doesn’t close, it will look like a failure. I’m reminded of the classic management Catch-22: A new manager asks, “What if we spend all this money training our employees, and they leave?” To which the experienced manager replies, “What if we don’t and they stay?”
Similarly, a new manager might ask, “What if the two companies’ employees work together before a transaction to determine how they can best work together, but the deal doesn’t close?” To which I would respond, “What if they don’t, and then the deal does close?”
If your company is exploring something that will benefit its customers, the customers will appreciate your sacrifice and effort. And they’ll respect your decision if a deal does not come to fruition. Neither company should hold the exploration so close to the vest that it delays an increase in sales.
Mergers and acquisitions do not create the proverbial low-hanging fruit for the sales team to pick. To benefit from top-line growth, merging companies must move preemptively on sales synchronization.
There should be a pre-close alignment of the sales teams, which identifies roles and responsibilities, marketing and communication methods, 90-day and one-year goals, and how the customers ultimately benefit. Doing so can mean the difference between good intentions and better sales.
This article first appeared in the Berkshire Eagle on July 6, 2024.