August 17, 2011

5 Reasons Why Mergers and Acquisitions Are Bad for Customers

Mergers and acquisitions are happening everywhere you look. Global merger and acquisition (M&A) volume totaled $716.3 billion in the 1st quarter of 2011. In fact, M&A volume is expected to reach $3.04 trillion in 2011, the most activity in five years, according to a recent report by Thomson Reuters and Freeman Consulting Services.

Of course, the print, customer communications and document output management industries are not immune to this activity. There have been many high-profile M&A activities over the last two years. But what does all this mean to you, the customer?

Read on as we highlight five reasons why M&A activity can be bad for customers…

“I Am Not a Number, I Am a Free Man”

You may recognize the quote from the 1960s TV series, The Prisoner, but in an M&A situation the reality of becoming a number is far from fiction.

All too often, customers become valuable to the acquiring business only as simple numbers on the profit & loss or balance sheet. Acquiring businesses might ask “how many clients do you have” and “what percentage of the customer base is paying yearly maintenance”, without much thought as to the people behind those figures or their needs.

Culture Vultures

It is quite common in an M&A situation for the brokers to put a deal together solely based on the financial value alone along with the speed with which the heads of the business (and the deal team) can get a return.

What is often overlooked while performing ‘financial due diligence’ is whether the two business cultures actually mesh. As a result, it is not uncommon to see a mass exodus of staff from both companies soon after the M&A has taken place, which leaves customers with broken service and a lack of continuity.

Or as Susan George, President of the Board of TNI, puts it “mergers and acquisitions are generally accompanied by downsizing.”

Technical Troubles

In addition to cultural clashes, many M&A processes go ahead without full technical due diligence taking place. Sometimes this is just an oversight on the part of the deal team. However, the fact that the two companies’ solutions do not work well together is often a strategy the acquiring business uses to their (supposed) favor.

For example, they may see the customer base as nothing more than an opportunity to switch the incumbent solution for their own, different products – sometimes removing support for the old solution as early as they can - which can lead to real issues for the customer and their systems strategies.

Terms of (non)Endearment

It is not uncommon for existing terms and conditions of sale or support/maintenance to be altered once an M&A process has taken place.

Imagine, for example, that your support & maintenance contract suddenly increases in cost by ten times without any discernable increase in the service level or quality of product. It happens all the time in the world of M&A, and it isn’t fair on either the clients or those employees that have to support them under a cloud of ‘bad will’.

High Stakes at the Not-OK Corral

According to many investment bankers, the rate of failure in the M&A business is 50%. Or, if you put it the same way as Dick Heckman, CEO of K2 Inc., "whatever can go wrong will go wrong.”

As a customer, you usually don’t have much control over whether a company enters into an M&A process or not. When it happens to you, how disconcerting is it that the odds of success of this venture is actually no better than a simple coin-toss?

Of course, there are some good reasons to merge companies...

•    To pursue a well thought-out geographic expansion strategy
•    To add one or more specific capabilities that would be more expensive, difficult and time-consuming to grow in house
•    To pursue top-line growth by plugging holes in capabilities that clients are hungry for

If you’re a customer of a recently merged or acquired business, take an objective look at what is really happening behind the scenes and decide whether to ‘stick’ or ‘switch’.

Sticking with the solution you have, in a bad M&A environment, could cost you a small fortune if your supplier is exhibiting any of the five issues above.

If any of this happens to you, it might be time to switch to a business that always has exceptional customer service at heart, and has a team of people ready to help you make the move.