Mid-market mergers are hot. According to a survey of 350 U.S. mid-market companies with $50 million to $500 million in annual revenues, 68 percent say they plan to engage in M&A activity in the coming 24 months. The reason is simple: middle-market organizations and the private equity firms backing them need growth.
Yet, in our work with mid-sized companies, we are routinely brought in by leaders struggling to realize the promised growth and revenue synergies of their M&A years after they’ve completed the deal.
Why? The odds of M&A delivering the promised benefits are low for any organization, and the risks are especially high for mid-sized companies.
They often must bootstrap their integration activities, focusing primarily on operations, financial, org structure, technology systems, and culture. Unlike large businesses, middle-market organizations don’t have in-house experience and expertise for navigating merger and acquisition integrations, and they don’t have the resources to hire teams of M&A specialists and consultants to guide them through the process.
While they focus their organizational attention on internal integration issues, they skip (or only lightly address) the development of a GTM strategy optimized for the newly combined entity. They continue to go-to-market with essentially the same approach as they had pre-deal, yet they expect new results. Flash-forward years later and they still haven’t reached their post-deal revenue synergy targets and goals.
In client after client, we’ve observed six serious, growth-inhibiting consequences of failing to create and implement a GTM strategy specific for the newly combined entity.
The demands of M&A are significant for leaders. They become so focused on deal activities and internal integration issues that they lose sight of the vision and strategic direction of the newly combined entity. They fail to articulate the new vision clearly and compellingly. This results in incomplete or unclear strategic plans and priorities for the organization. The subsequent deficits in frequency and clarity of communication to employees lead to confusion, trepidation, and lack of action. And without focused action, there can be no growth.
That lack of focus and clear communication makes employees uncertain about the direction of the business and their future in it. They become frustrated with messy and/or protracted integrations that force them to suffer through organizational swirl. High-performers can quickly “check out” and there is no better time for a competitor to come and scoop up good talent. This departure of key people and the organizational “brain drain” that goes with it acts as a drag on integration efforts and growth.
With confused and under-performing employees stretched thin and distracted by integration issues, it’s common for quality, delivery, customer service, and support to suffer. Customers concerned about what the merger or acquisition means to them, become hypersensitive to even the smallest “hiccups.” In normal circumstances these missteps might be dismissed or ignored, but given merger uncertainty, can they quickly become reasons for customers to consider your competitors.
Even if your current customers aren’t looking around, your competitors are most certainly looking at them. As soon as competitors become aware of your M&A activity, they can turn up the hyperbole about the risks your merger poses to your customers’ businesses, putting on a full-court press to win them away.
If you aren’t proactively framing the merger, and the benefits it brings to customers, you are allowing your competition to frame it for you. You can keep competitors from hijacking your customers by developing a communications and service plan very early in the process (pre-deal preferably) so you are ready to communicate and over-service customers as early and as often as possible after the transaction.
This is most critical with strategic accounts (i.e., large customers), often a key to growth for many mid-sized businesses. While you’re focused on the internal challenges of integrating your businesses, competitors use this opportunity to convert and lock up hard-to-acquire large customers. The loss of a strategic account is especially painful because they not only provide high revenue and lifetime value, they don’t switch providers very often and there aren’t many of them. It can take years before you get a chance to win back a strategic account.
Even if competitors fail to win away customers, their negative messaging can cause serious confusion and concerns in the market. This, in turn, may create undesirable brand awareness and perceptions – negatively affecting your lead pipeline, and increasing sales cycles and costs.
It is, then, critical that your messaging and value proposition be clear, compelling and consistent during the integration period – and you turn up the volume. Not only will this offensive help blunt the competition’s efforts, it also ensures that sales reps and employees are equipped to optimally communicate in the marketplace as well.
Mergers result in expanded product and service portfolios that are intended to boost sales. Instead, eager to begin generating revenue, mid-market companies often skip the step of developing an intentional GTM strategy for their newly combined product portfolio. The result is complexity and confusion among customers, sales force, employees and channel partners that significantly impedes all sales activities and close-rates.
A well-thought-through strategy for the newly combined product portfolio will make it easy to understand, sell and buy. Without one, marketing and sales staff will struggle to communicate the new offering, and customers will turn to competitors for easier-to-find-and-comprehend solutions.
The above risks can be avoided by the creation and implementation of an effective GTM plan, one conceived from the start as part of the overall merger integration strategy. We favor the type of post-merger GTM strategies proven out by nearly two decades of work with mid-sized companies.
However you chose to approach your GTM planning, the key truth to observe about achieving your post-M&A revenue goals can be found in an old saying: what got you here won’t get you there.
What’s your plan?