Customer Communication in Mergers and Acquisitions
Understanding how customers will perceive news of your acquisition will improve the transition. Learn about the need for planning and the costs to manage customer perceptions.
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 the changes 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 decided to change 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.
What about internal customers?
Communication with customers isn’t the only aspect of mergers that need to be addressed. Any savvy business person worth their MBA knows that internal customers are just as important (and sometime even MORE important) than your external customers. Relaying your rebrand and changes in corporate structure internally should be an integral part of your communications strategy.
Each company on both sides of a merger should have a thoroughly-trained team of people ready to address all employee questions and concerns. It is just as vital, if not more so for the employees to understand exactly what will happen and when.
Internal communications that are handled poorly can lead to fear, confusion and misunderstanding, as well as a rash of early exits. These factors combined can make a merger much harder to achieve for both companies, so having people who have the answers at their employees’ fingertips is a must in all mergers.
Most employees will have the following questions floating around in their heads:
“Why is our company merging?”
“How will this merger affect my work?”
“What kind of support will I receive during the merging process?”
“Will I still have my job when this is over?”
“Will I still make as much after the merger?”
“What will happen to my retirement plan?”
The key to successfully navigating a merger starts with both companies taking ownership of their actions. Using visual media, emails, group meetings and other forms of communication to spell out to employees why the merger is happening, the future prospects of the new company and the timeline in which things will happen. Employees who are going to lose their jobs need to be told as soon as possible, so that they can begin looking for other work elsewhere. The rest of the employees need to know exactly why the merger is happening and how it can benefit them.
One of the key mistakes that many merging companies make is tailoring the majority of the communications about the merger to the top-level executives and managers. In most cases, those people are already in favor of the merger (or at least understand why it’s happening) and don’t need further encouragement. An effective internal communications team should instead focus on communications with the rank and file employees, so that the workforce at large is kept in the loop.
Data culled from various sources indicate that there is usually not enough communication between the IC team and those at the bottom of the ladder. It is a good idea for the company to send every employee a letter or email describing what is going to happen, why it is happening, when it is happening and how it will impact the company at large. They should also be directed to the IC team if they have further questions.
Companies that fail to address these issues with employees are likely to experience a drop in employee productivity, a drop in morale and also a drop in customer satisfaction, all of which can hurt the company’s bottom line. A poorly-communicated merger can lead to all kinds of confusion and problems between the various departments in each company as they try to become integrated. A well-communicated merger can help to ensure as smooth a transition as possible.
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 carefully your choices, how the news will be received, what the cost of the communication plan will be and how you will communicate with internal customers when assessing the risk and complexity of any acquisition.
Written by Robert Sher
Robert Sher is founding principal of CEO to CEO, a consulting firm of former chief executives that improves the leadership infrastructure of midsized companies seeking to accelerate their performance. We help these leaders rapidly elevate their game and lead their companies to the next level and beyond. We work with the senior-most executive at companies or divisions with revenue ranging from $20 million to $400 million that are facing significant opportunities and challenges.