Strategic M&A 2019
A Recipe for Success with Mergers and Acquisitions

Success Is in Your Hands: Deliberate Steps by Vendors Determine the Success of a Merger/Acquisition

Almost all M&As result in notable change in customer satisfaction—the odds that customers will be left untouched are less than 20%—and the chances of satisfaction improving or declining are almost identical (42% and 40%, respectively). This shows that M&A activity is not inherently bad or good, but there are clear differentiators between companies who see improvement and those who see a decline. Vendors’ deliberate choices around cost, culture, and value determine which way the pendulum will swing (see page 2 for pitfalls and best practices). And while individual leaders can make a difference, making the right choices for customers requires buy-in at all levels and in all areas of the company. Proactively making the right choices is essential—vendors who see a significant decrease in customer satisfaction in the first year typically take three to five years to recover, if they recover at all.

Vendor Vulnerability Doubles after a Poor Acquisition

Poor customer satisfaction in the wake of a merger or acquisition has a significant effect on customer retention. On average, the number of customers looking to leave their vendor doubles one year after a poor merger or acquisition. The top cited reasons are frequent nickel-and-diming, a decline in the quality of phone/web support, and stagnant product development. Conversely, a strong merger/acquisition strengthens both customer loyalty and evangelism. This is because customers feel their vendor is aligned with their goals, cares about their success, and provides a sense of stability.

A Customer-Centric Approach to Price, Value, and Communication Makes M&As Successful

Poor Culture Sinks Good Companies after M&As

Consistent Pricing during Time of Change Fosters Customer Confidence

After a merger or acquisition, many companies change pricing structures or introduce new fees to increase revenue, but successful vendors refrain from making significant cost changes during the first year or more of the transition. Consistent pricing creates a sense of stability among customers.

Proactive Communication Essential to Alleviating Decision-Maker Concerns

Proactive communication is key to a successful transition. In the absence of communication, customers are stuck creating their own stories about the company vision, product-sunsetting plans, changes to account management, and so forth. Communication is most effective when it is (1) early, (2) frequent, and (3) directed at customers individually (as opposed to mass messaging or press releases). This type of communication creates a clear understanding of the vendor’s go-forward vision and how customers will be affected.

Delivering Value Is More Important Than Delivering New Functionality

In the months after a merger or acquisition announcement, customers often express initial optimism, hoping that the change in leadership will result in an infusion of dollars for innovation to provide them with better integration and functionality. Reality tends to fall below these inflated expectations. Companies that see measurable increases in product satisfaction achieve this by focusing on tangible outcomes rather than delivery of specific tools—helping customers use both existing and new functionality to achieve their goals. The resulting shift in customer thinking contributes to an increased perception of value.

Poor Executive Involvement Leads to Poor Problem Resolution

Many customers dissatisfied after M&As report a lack of executive involvement (i.e., lack of access to individuals empowered to help solve problems). Companies with unsuccessful M&As often reduce customer-facing staff’s ability to solve problems by gutting client success programs, creating additional layers of bureaucracy, or incentivizing staff with metrics misaligned with customer success (e.g., sales focused). The impact of these changes is significant—on average, companies with poor executive involvement see 17% fewer sales and 36% lower customer loyalty.

Overselling & Overpromising Create Unattainable Expectations

Previous KLAS research has shown that how companies sell is a statistically significant predictor of customer satisfaction, and this holds true in the wake of M&As. Vendors who promise certain outcomes but don’t sell customers what they need to accomplish these outcomes create high product expectations that are inevitably left unrealized. When companies make promises simply to close a deal or are not prescriptive about what customers need to succeed, they set customers up for disappointment. Companies who don’t manage client expectations well are rated nearly a full point lower for the metric “product works as promoted.”

With Insufficient Support, Customers Feel Forgotten

Phone and web support scores often drop after M&As for varying reasons. An influx of new customers without new support staff creates significant backlog or makes it difficult for customers to get in touch with support at all. Support departments are often trimmed down to increase the bottom line before or after a merger or acquisition. And support teams may be uninformed about the company vision, contributing to uncertainty and confusion among customers. By ensuring sufficient staffing and effective internal communication, vendors can demonstrate they will continue to invest in customer success.

Healthcare-Specific vs. Cross-Industry

Companies with a healthcare-specific focus are more likely to see increases in customer satisfaction after a merger or acquisition; such companies are often more aware of the level of communication, training, and handholding required for healthcare customers to achieve promised levels of success. Healthcare-specific companies are also perceived as having more expertise and are trusted to make decisions in customers’ best interests.

Private vs. Public

Customers of private companies tend to fare better overall than those of public companies after a merger or acquisition. Private companies often have more leeway to act in customers’ (rather than shareholders’) best interests and can invest in long-term strategies that may lead to less revenue today but will insulate against customer turnover in the future.