Buyer's hubris harms revenue growth from acquisitions

Accenture recently released a report entitled “Leveraging Sales & Marketing to Maximize the Value of Mergers and Acquisitions.” This report quantifies what many people have felt about M&A—as far as growing revenue long-term, it’s not a successful strategy. Among Accenture’s findings was that while 56% of companies studied grew faster than their industry groups in the two years before they made a large acquisition, only 33% duplicated that feat in the two years following the year the deal closed.

The report lays out reasons this is so: disruption to customers, loss of key customer-facing staff, unexploited opportunities to market to new customers. (They also provide suggested remedies—they are consultants, after all.)

After living through three significant acquisitions (being bought twice, buying once), I believe there is a deeper reason that drives what Accenture observed—buyer’s hubris.

In spite of rhetoric like “merger of equals,” “best of breed,” and so on, in my experience buyers develop a mindset that they are superior to the company they purchased—smarter, with better products, processes, etc. (Otherwise, perhaps the shoe would be on the other foot!) This is especially true when the merger consolidates the businesses of two once-competing companies.

I recall pleading with one acquirer to retain the name of our company’s flagship product—it had brand value and keeping it would signal to the large customer base that the product itself wouldn’t be retired. At first, the integrated marketing group (led by the buyer’s VP of marketing) thought this was a crazy idea. But, after much discussion, the group reluctantly agreed. That acquiring company no longer exists, but the product—with that old name—lives on and supports many of those same customers.

Buyer’s hubris extends to the acquired company’s customers. Rather than being carefully cultivated, they are frequently taken for granted. (What they need is to be resold on the new company. This is rarely done, in my observation.)
Similarly, the people who support those customers are seen as suspect. Those people may have competed—in some cases, successfully—against the buyer’s sales team. (Perhaps sour grapes is a reason the customers are not treated as carefully as need be.) At any rate, it’s difficult to trust former competitors. As a result, they are not welcomed; their opinions are not solicited.

When consolidating a market, real humility on the buyer’s part is required. There’s a lot of human nature obstructing that, and perhaps it’s unrealistic to think hubris can be overcome. Until that day, however, we’ll continue to read studies documenting poor growth results from mergers.

(Thanks to New York Times Dealbook for the pointer to this research.)

Related posts:
Ultra-competitive mindset costs dealmakers

Tags:
acquisitions, integration, psychology, growth