A View from the Trenches
by Jack Prouty, President M&A Leadership Council
For this success story, let me share some quick background: A large Midwest consumer products company acquired a small, privately held company in an adjacent business (similar customer base, but very different products). This was a diversification strategy: to provide a broader product portfolio across their clientele.
Usually, when a company moves outside its core competency into related products and services, there can be a fairly lengthy learning process before they start seeing the synergies of the deal. This is especially true in generating incremental revenue. Many companies talk the talk of achieving rapid sales growth in a short period of time. Few do.
I had been involved with this company on the initial integration planning and worked with them until shortly after close; however, I maintained a relationship with them and tracked their post-close performance. I was very surprised that within 60 days after taking ownership of this new and different business they began showing significant sales growth. Talking to the key business owner, who drove the integration effort and subsequent business operations, here is his explanation on how they were able to achieve this success:
“My view on our initial success in growing sales is that, if anything, we underestimated the effectiveness of the resources we could bring to bear to this newly acquired business. This begins and ends with the superiority of the broker relationships we had versus those of the acquired company. They were simply too small to be important to their brokers, and made up for it by spending more in trade discounts. We have a strong broker relationship, including our ‘D-Team’ (makes direct calls on retailers to close distribution voids), that has enabled us to make fast progress. We also have focused our team on optimizing the items at retail (“Fix the Mix”) and have weeded out some of the interesting-but-not-strong-selling items previous ownership had introduced. Finally, we provided small financial incentives to our own team (including brokers) to make fast improvement in Fix the Mix. Great salespeople always love (compensated) competition!”
Let me add my own observations to his comments: even during due diligence the acquiring company spent significant time doing market research and competitive analysis on the target company. This included its products, its market positioning, and its marketing and promotions. Prior to close, they created excitement within their company on the products this company would be adding to their mix, the attractiveness of them to their customer base, and the market growth potential it could provide. Early in the game, again prior to close, they started on-boarding their sales teams and developing an aggressive sales launch program. Yes, they benefited from both companies serving the same customers, but it was this aggressive planning and execution in the marketing and sales areas that led to these rapid revenue growth successes.
This is a best practice from which many other companies in similar situations might be able to learn and benefit.