Pay attention to the pieces
By Victor Harding
If you read papers on mergers and acquisitions as I do, one statistic pops up all the time.
By Victor Harding
Seventy per cent of all acquisitions deals fail to return a proper rate of return to the buyer. My guess is that intelligent buyers are probably looking for a minimum of 20 per cent rate of return on deals. That is just the buyer’s position. My bet would be a full 70 per cent of sellers would say that their business was not handled properly after the deal was closed, meaning the integration process was most likely not done right.
It constantly amazes me how much time buyers and sellers spend poring over relatively insignificant terms of their deal before closing and how cavalier both parties are with the integration after closing. If you want a deal to pay you back, you simply have to do the integration properly.
Let’s divide the integration process down into two main parts:
1. Handling the transference of the basic customer functions to the buyer properly. In the case of an alarm company, this would be the billing, monitoring and customer service functions.
2. Handling the cultural/buyer people issues properly.
For security companies, here are the main elements of the basic customer function transfer.
Imagine how a customer feels after receiving a nice letter explaining that a deal has taken place and a new company is now billing their account. When you get the first invoice, you don’t recognize the charges, or maybe the charges are wrong or you get your invoice one or two months later than usual. Not a great start to the relationship. Not enough care is taken with the transfer of the billing function.
To make matters worse, you call the new customer service line to clarify your bill and the new customer service person has no clue what you are talking about. A basic step here is for the buyer to inform all their customer service staff that a deal has been done on a new block of accounts from Company A and to take special care with them. In fact, I advocate that, given that the buyer is often paying up to $1,000 per account and more, customer service in the buyer’s company should be tasked with calling each and every customer to make sure that: the customer received a letter explaining the deal; the buyer has all the correct information on the account (call list, panel info, zones); and the customer is happy with his service.
Here is a rule of thumb for buyers: try to make the first invoice sent to newly bought accounts look as similar to the old one as you can. Send the invoice out in the same billing rotation and make sure your pricing stays the same. For sellers, if the buyer tells you they simply have to start billing your accounts immediately after the deal closes, tell them that is nonsense and that you will not accept any attrition from a rushed billing process.
Talk to anybody who handles deals for monitored accounts — they will tell you that if you want to minimize attrition, don’t move the accounts. They are right. Every station I have seen has a different practice. Some call on cancel codes. Some do not. Some call on low batteries at any time. Some are more discriminating. Real trouble emerges with more complicated monitored accounts. New stations often just don’t get the call practices right. A company I did some work for in the Maritimes tried to move their accounts to another much better station but had to move them back because the customers complained to the owner.
In my opinion, cultural/people issues are where big mistakes can be made.
Mainly, those mistakes stem from the buyer’s attitude and failing to take into consideration that the bought company has its own culture and key people who have made it successful. It is how the buyer manages the process that is important now. How many of us have talked to very capable people who told us they left the company they worked for a year or two after it was bought because the new team doesn’t know what they are doing and doesn’t listen?
I understand the need to fullyintegrate back office systems like billing in order to take advantage of efficiencies, but do that carefully. Take a great deal of care with all the people you are absorbing to make sure you motivate them to do as good a job for you as they did for the selle
When all is said and done, integration is very basic stuff. But I will suggest to you that the prime reason why 70 per cent of all acquisitions fail to deliver the required rate of return for the buyer is that the integration process was not handled properly.