Leveraging Sales and Marketing to Maximize the Value of Mergers and Acquisitions

Our analysis of Thomson Financial data shows that since 2002, global M&A deal volume has been growing at a compound annual growth rate of up to 29 percent, with 2007 deal volume increasing to $4.4 trillion. While the acquirer's top-line traditionally benefits from revenue growth in the first year after an acquisition, few companies have been able to achieve sustained increases in revenue growth in the subsequent years post-close.

There are numerous reasons for these post-close revenue growth challenges. Chief among them is a tendency among acquirers to become inwardly focused on integrating their new acquisitions, and they lose sight of the need to retain and grow their customer bases. In a single-minded pursuit of cost synergies, acquirers may also end up hurting the combined company's positioning for revenue growth.

However, those companies that put the customer first, successfully equip employees with the right tools and messages and mine their customer databases to drive profitability can succeed at generating post-close revenue growth.

In a study of 80 global deals completed from 2002 through 2005, around 58 percent of acquirers were unable to generate increased revenue growth in the second fiscal year after the deal closed compared with what their growth had been two years before the deal. Furthermore, revenue growth for these companies was nearly 600 basis points lower post-close than pre-close.

Even when normalizing for industry and economic cycles, post-merger revenue growth is still elusive. In a study of 36 deals concluded by public US acquirers in 2002 through 2004, around 56 percent were growing on average 6 percent faster than their S&P 500 industry sector in the two years before the deal. However, only up to 33 percent were able to grow faster than their industry sector in the second year after the deal close, with the average for the original group of companies dropping to approximately 4 percent lower than the industry growth rates.

One example of companies' inability to get back to pre-merger revenue growth rates is the acquisition made by an established leader in the outsourcing arena of a fast-growing start up. On paper, this deal should have changed the industry dynamics and created a "one-stop-shop" for outsourcing deals, generating additional revenue for the combined company. In reality, two years after the deal announcement, the acquirer was struggling to stay competitive after posting a significant year-end loss and with its stock price falling.

The acquirer admitted to having underestimated the complexity of taking on a large number of new contracts in a short period of time and miscalculating the cost of executing them. This, combined with the loss of confidence in the new organization, led to negative sales growth for the first time in the company's history and a decrease in sales growth from around 16 percent growth two years before the deal to around -1 percent sales growth two years after the deal.

All customers will be affected by a merger or acquisition. The key is to understand how.

A clear strategy that focuses on reducing customer disruption, communicating changes timely and accurately, and developing robust retention programs for profitable customers is essential to successfully manage customer expectations. The benefits are well worth it.

Companies can experience:

• Satisfactory retention rates for customers and employees.
• Market stability.
• Informed customers who act predictably during the integration.
• High level of excitement on the part of the customer that can lead to even greater loyalty.

Not only are customers at risk during integration, maintaining high-performing employees could also be at risk if staff retention is not managed properly. To help reduce these risks, company executives must win the hearts and minds of client-facing employees first and then leverage them to keep customers at ease. In addition to a motivated sales force, the right tools and messages to communicate with customers can be crucial in maintaining and growing the customer base throughout the integration phase. Engaging leaders from both organizations, developing fair and effective financial incentive plans, and creating and clearly communicating the integration plan are other examples of strategies used in successful integrations.

Successful companies use mergers as an opportunity to discover untapped revenue potential by optimizing cross-selling and rationalizing channels, products, pricing and overall marketing efforts. This can be done if companies understand their new pool of customers—their segmentation, preferences and behaviors. High-performance businesses in various industries have been able to successfully leverage these strategies to generate post-integration revenue growth. These are the companies that provide useful lessons for executives thinking about pursuing M&A activity for the sole purpose to generate growth.

Accenture has been involved in up to 400 M&A deals over the past five years and is a leader in providing sales and marketing support. Given our experience, we understand what it takes to help increase the growth opportunities of mergers and acquisitions and utilize the lessons learned from our client experience.

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