How much will you have to explain to the marketplace after the acquisition? Some strategic acquisitions are stealth-like — the customers won’t even know there is new ownership. Other times, you’ll want to hang up the “New Ownership” sign and let the trumpets blare.
Change in Branding After M&A
The greater the extent of the change in branding, the greater the complexity and risk of the integration. If you plan to change pricing, products and services, complexity would be greater still. For example, in my second acquisition, we created a new umbrella brand, making sub-brands of the original company I had founded along with the two I acquired. This was a complex process, requiring the sales team to tell the story with marketing’s support. In another example, a firm bought a competitor and significantly raised the target firm’s pricing. The market resisted — blaming the acquirer — and sales dropped. Eventually the acquisition review board reversed the decision and restored the old pricing structure. A merger of equals in which a new corporate name is created would serve as an extreme example of visibility to the customer base.
There are three facets to the question of visibility in mergers and acquisitions to the customer base:
Do you have a choice?
Can you keep it “quiet”? In many cases you won’t want to, especially when thechanges and re-branding add value and will be well received in the marketplace. In other cases, changes to product and brand are not immediate, but happen in a second phase. For example, Central Garden and Pet (NASDQ: CENT), a distributor of pet products, began buying companies in the late 1980s, buying up dozens of firms. Until the early 2010s, they bought companies and let them run independently, almost like investing. But the firm is now considering changing its strategy entirely, by integrating all acquisitions more quickly. In contrast, when Pelican Products bought out its arch rival Hardigg Industries, there was no hiding the fact, and customers worried about what might happen to some of their favorite products.
Will customers receive the news negatively?
Take the sale January 23, 2013, of Current TV (a liberal cable network) by Al Gore to Al Jazeera (the Middle East network which aired Osama bin Laden’s propaganda). This caused quite the stir in social media and the press, so public perception is bound to have an effect on the future success of Current TV. Of course, Al Jazeera may be more interested in whatever positive brand image lift the acquisition will have for Al Jazeera — a legitimate, strategic objective.
Bentley House — the art publishing company I founded — started with traditional art. When we made our first acquisition of contemporary art publisher Rinehart Fine Arts, customers and artists alike were very concerned that we could not appreciate contemporary art and so would lessen the quality of art under the Rinehart brand. Since we knew this coming in, we retained the seller’s involvement going forward, and messaged accordingly. In vertical acquisitions (where a supplier or customer is purchased), channel conflict is a concern, often resulting in the immediate loss of a key supplier or customer.
How much effort and cost will be required to manage customer relations?
One of the top priorities for any acquisition is a communications plan. The more constituencies that must be handled, the more work there is to do. Keeping acquired customers happy and buying is paramount. In challenging cases, top executives must get on planes during the week of the announcement to visit key customers. Other leaders must man the phones, calling customer after customer, to explain what has happened and how the customer will be better off. Business to consumer (B2C) companies must launch advertising and social media campaigns to reach everyone. Do you have a team in place to manage this? Have you budgeted this cost into the acquisition price? Most companies don't, but this is something you need to consider before you find yourself in this situation and unable to facilitate a smooth transition.
Controlling the perceptions and buying decision of the customers you just acquired isn’t easy. With social media, the risk is greater than ever — everyone has an opinion. Consider these three questions carefully when assessing the risk and complexity of any acquisition.