Why Mergers Kill Customer Value


The M&A season is underway. Dell is looking at a $24 billion private equity deal that will privatize the company. Berkshire Hathaway is looking to buy H. J. Heinz, the ketchup brand, for $23 billion. Liberty Global wants to buyVirgin Media, a British cable provider, for $16 billion. US Airways and American Airlines are merging to form the world’s largest airline.

Each of these acquisitions creates a risk of disruption to the customer. Will Dell’s product line change and obsolete equipment customer rely on? How different will an American Airlines’ passenger experience be on a US Airwaysflight?

The basis of any M&A deal, regardless if it’s to buy a product line, intellectual property, or an entire business, is revenue growth. If I buy you, how much additional revenue, today and tomorrow, will that yield to me.

For all the M&A due diligence done very little effort is expended to understand the expectations of customers. An equal paltry amount is spent on understanding how customers will respond to the news or to minimizing the disruption to their experience. Deals are made under the mistaken assumption that customers will remain loyal even as the brand they love will change. Having been involved in a lot of M&A transactions, I find the “customer” is rarely the centerpiece of integration work. In fact, while customers are the most valued asset in a transaction, they are treated like their loyalty can be bought and sold. In fact, the disruption and chaos from a merge often drives customers away and is the primary reason acquisitions do not measure up to their projected financial benefits.

The law requires a cloak of secrecy until the deal is signed. However, during integration when the two companies plan on how they will become one is an excellent opportunity to address the customer experience.

Instead of giving the customer only cursory attention, what if we took a different approach?

As part of the integration plan investing in understanding the experiences customers valued, expectations they have along their journey and actively involving customers to co-create a new, valued customer experience is a good place to start. By putting the customer in the center of the integration process, the success rates of acquisitions could improve. Because it really is all about the customer; not the org chart or systems, these are a means to an end.

Counter to popular myth, customer experience discovery and strategy do not take months to complete or require vast teams of consultants. They can be completed, depending on the size of the companies involved, in four to six weeks with existing staff from the combining companies. The knowledge gained and the rapport built with customers will go a long way to making the acquisition accretive.

Here are five recommendations for putting the customer back into the M&A process:

Include a customer advocate team in the M&A process responsible for assessing and determining how to maintain or improve the experience for customers through the transition.
Add customer experience gap assessments to due diligence to evaluate what customers will be expecting and identify any gaps that will impact revenue projections.
Re-structure integration plans into four parts of equal emphasis – customer experience, employee integration/engagement, business model/systems integration and legal/regulatory compliance.
Establish a customer ombudsman responsible for driving customer outreach and on-boarding, co-creation of new interactions and solutions and internal advocacy for voicing customer concerns.
Expand the M&A integration scorecard to include customer sentiment and customer experience expectations.