Mergers & Acquisitions:
3 Steps to a Successful Acquisition
with Keith Conley
So what would you say would be one of the top two or three reasons why the valuations are so high right now?
Well, at least in technology, you have really good track record of growth. Although COVID was episodic in nature, if you just take out the up and down of that, you have a lot of strong predictable growth. And the margins have improved over the years. So you have predictability. And today you have more reoccurring revenue, you know, a lot of the companies have really focused a business model on that versus transactions. So the businesses are stickier, thus, that’s more attractive to a private equity company.
Okay, so that’s going to lead us into you know, impact the sales organization. Now, as you know, Keith, what we do is sales effectiveness work here at SalesGlobe, and we focus on for m&a the integration of the sales organization. So, from your perspective in the overall picture in view of a merger or acquisition, how important and what how important is the role of the sales organization to the success of m&a work?
Well, it’s certainly critical. Now I would summarize, there’s three areas you have to get right for the for the acquisition to be successful. Number one would be, you gotta maintain the revenue of the targeted company. If that revenue erodes, your whole business case goes sideways, in all the synergy you take out are easily evaporated. So, at a minimum, you need to maintain the revenue. The second is you've gotta maintain your top talent. And I’ve always focused on sales and project management being your top talent. So you put together plans to secure that because I recall one acquisition, we lost the top five salespeople that were the hunters on the first week after the acquisition, that you know, dramatic didn’t have a huge impact near term, because we’re able to surround those clients, there was some overlap. But in the medium term, we felt the impact, because there’s not a lot of hunters out there truly. And then the third would be just to at least meet your synergies if not exceed your synergies. But you know, when you look at synergies and overlaps, I have always been very careful about taking a lot of or planned synergies in the sales team. There’s a lot of consternation going on, you know, comp plans, rolls and so forth, territory planning. And it’s just not an area that is worth trying to get the synergies early on in the sales, at least for people touching the client, right, anyone touching the client, you really don’t want to touch those people, for a while, keep them in place, maintain client continuity, right, you may have overlap with some sales leaders, or inside sales, and so forth. But the third thing is anything that in any salesperson touching a client tread very careful. And I just think that’s not the place to count on synergies, short term. I mean, they’ll flush themselves out the territory planning, changing comp plans, eventually, and you’ll have some people, you know, leave voluntary or involuntary. But IP, I’ve always been very judicious and not trying to have a lot of synergies in the sales area the first year.
That is such really great advice. So you basically you said three things, which are, the first two, much easier said than done. The third, you can deal with some other pressures, like from the board, right when you start talking about those synergies, but the first thing you said was maintaining the revenue of the targeted company. So you bought that company for a reason, you want to make sure none of that particular revenue erodes or goes to the competitor or whatever happens there. Second thing you said was making sure that you keep your top talent. And then thirdly, making sure that you’re able to keep your synergies and exceed them, but leave the sales organization alone as far as those synergy expectations, at least in the early days, or for customer facing roles. Now, I want to follow that up with a question. So we we did a recent survey that had over 600 companies that that responded, and half of them had been involved in an acquisition over the last 12 months. And we asked them, what were the biggest challenges that they had, and we had like seven or eight. But the top three were and I want to hear your I want to hear your feedback. The one was integrating the sales organization, integrating the two teams, the other was getting alignment across an overall go to market plan, which that sounds like so big, right? Another thing was the role definition. So just making sure that your teams have alignment on the roles and how they’re defined. I’ll give you a simple example of that. Because that was a big one for for our clients. Inside Sales, like Company A may be doing and behaving very differently than Company B, one could be entry level, a way to get into Field Sales, another might be a professional but of its own, and then finally, cross selling. And I’m sorry, there is one more incentive comp.
Yeah, cross selling is an elusive one. I’ve always found that to be the most difficult. Every time we did a transaction with a different PE company. We had five different business units and they would say oh boy, if you just cross sell more, cross sell more. We spent a lot of energy on and we merged it, we compensated it, but I’ll tell you, that’s that’s probably the most difficult one. The three that come to mind to me, and those all resonate, right they’re all real issues. But you know, number one is the comp plans, right? They’re likely to be very different in comp plan speak a lot about culture of the organization. Right, we bought one company and their comp plan was such that no salesperson could make more than their CEO. And we always viewed it as we, if we have a salesperson that makes more than their CEO, you know, assuming they did the right incentives are in place. That’s awesome, right? So the comp plan is an area that you need to tread, um, you don’t need to rush that one. Right? There’s a lot of complexity there. That can demotivate the sales team. Right. And we would typically, you have to look at your cost of sales. But we we’d be very intentional on the competence, but not rush it. The second area is the territory planning realignment, again, that is not an area to rush, right, you’re gonna have some obvious, most likely overlap and some accounts and so forth, right, maybe the same decision maker or not, but there’s just a lot of anxiety around territory planning. And I think we’ve always treaded lightly on that, and then potentially just communicate a lot. And the third is what you talked about is the alignment of the roles. You know, an account manager at one company might be very reactive. And an account manager in our company was a quota based farmer that drove growth year over year 20%. So in the role definition, especially in a merger, you can cause a lot of consternation that really has to be thought out well. So those are the three that I always think through with that even though the president of the company, I was involved heavily in all those decisions. As we acquired companies just knowing if you weren’t, if those weren’t addressed correctly and appropriately, you’re gonna have some problems on voluntary attrition.