Academic journal article The McKinsey Quarterly

Keeping Your Sales Force after the Merger: Merging Companies Should Look to Their Revenues, Not Just Their Costs

Academic journal article The McKinsey Quarterly

Keeping Your Sales Force after the Merger: Merging Companies Should Look to Their Revenues, Not Just Their Costs

Article excerpt

Executives list revenue growth as one of their primary goals in 80 percent of all merger announcements. Yet most of the time, it remains elusive. Merging companies typically focus on integration and cost cutting after the deal and neglect day-to-day business, thereby prompting nervous customers to flee. In one recent merger in the pulp and paper industry, for example, the acquirer was so preoccupied with the details of integration that it reacted sluggishly to a supplier during a routine review--and lost its biggest customer.

Indeed, in the three years following a merger, a mere 12 percent of companies grow more quickly than they had before.(1) Most sloths remain sloths, and many solid performers slow down. This loss of revenue momentum is one reason so many mergers fail to create value for shareholders. In our experience, coming up short on revenue targets after a merger has far more serious effects on the bottom line than failing to meet planned cost savings. In one merger, we found that offsetting a mere 1 percent decrease in revenue growth would require cost targets to be exceeded by 25 percent to justify the acquisition premium.(2) Since nearly half of all mergers fail to achieve even their planned cost savings, it is imperative to maintain revenue growth.

How can executives avoid the revenue slowdown that sinks so many mergers? They should spend as much time winning the hearts and minds of their customers as they do wooing analysts and investors. Companies may use cost savings to justify their mergers, but once the deals are done the best of them focus on securing their customer base before merger turmoil takes its toll. After all, a company can always go back and cut costs, but revenue is fragile, and once customers have gone elsewhere they are very difficult to win back.

The sales force is golden

A company must start quickly to hold onto its customers and keep its revenues flowing. Typically, most top management teams devote the crucial days after the announcement of a merger to working out its legal and operational details. While these tasks obviously can't be ignored, CEOs must also find the time to generate excitement for the merger among frontline employees. As the strongest link to customers, the sales force serves as the key messenger for communicating the merger's benefits: win over the sales force, and the company is on its way to maintaining its customer base. But if you send salespeople a contradictory or unclear message about the positive side of the merger, or if they are distracted by internal considerations, customers are sure to defect.

Successful acquirers thus court salespeople lavishly, offer them significant financial rewards, and set up "war rooms" to help them win the battle for customers. Such companies have a comprehensive internal-communications plan ready to roll the day the deal is announced. Details of the merger are typically explained to the sales force first and to the rest of the company later. Once the front line is fully on board, it can sell the merger to customers effectively.

Make no mistake--the uncertainty generated by a merger creates the perfect environment for competitors to launch an attack. Your best people will get calls for job interviews within days, and your customers will be actively courted. Too many merging companies get caught off guard when competitors mount a powerful response; consider, for example, Commerce Bancorp's "Sink the Fleet" campaigns, which awarded that company's local branch employees a lump sum every time the local branch of a merging competitor closed.

Unless you have a plan to retain your sales force, on the day of the merger announcement you are likely to lose key salespeople and, probably, many of their customers. Such a plan must include a well-orchestrated communications effort, a clear road map for integration, and the right kinds of financial incentives. …

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