3 Steps to a Successful Acquisition

So what would you say would be one of the top two or three reasons why the valuations are so high right now?

Well, at least in technology you have really good track record of growth. Although Covid was episodic in nature. If you just take out the up and down of that, you have a lot of strong predictable growth and the margins have improved over the years. So you have predictability. And today you have more reoccurring revenue. A lot of the companies have really focused their business model on that versus transactions. So the businesses are stickier. Thus that's more attractive to a private equity company.

Okay, so that's going to lead us into, you know, impact to the sales organization. Now, as you know, Keith, what we do is sales effectiveness work here at Sales Globe and we focus on, for M and A, the integration of the sales organization. So from your perspective, in the overall picture and view of a merger or acquisition, how important and what, how important is the role of the sales organization to the success of M and A work?

Well, it's certainly critical. I would summarize. There's three areas you have to get right for the first acquisition to be successful. Number one would be you got to maintain the revenue of the targeted company. Right. If that revenue erodes, your whole business case goes sideways and all the synergies you take out are easily evaporated. So at a minimum, you need to maintain the revenue. The second is you gotta maintain your top talent. And I've always focused on sales and project management being your top talent. So you put together plans to secure that. Because I recall in one acquisition we lost the top five salespeople that were the hunters on the first week after the acquisition. That dramatically didn't have a huge impact near term because we were able to surround those clients. There were some overlap, but in the medium term we felt the impact because there's not a lot of hunters out there. Truly. And then the third would be just to at least meet your synergies, if not exceed your synergies. But when you look at synergies and overlaps, I have always been very careful about taking a lot of or planned synergies in the sales team. There's a lot of consternation going on. Comp plans, roles and so forth. Territory planning. And it's just not an area that it's worth trying to get the synergies early on in the sales, at least for people touching the client. Right. Anyone touching the client, you really don't want to touch those people for a while. Keep them in place, maintain Client continu. Right. You may have overlap with some sales leaders or inside sales and so forth. But the third thing is anything that any salesperson touching your client tread very careful. And I just think that's not the place to count on synergies short term. I mean they'll flesh themselves out the territory planning the change in comp plans eventually and you'll have some people, you know leave voluntary or involuntary. But I, I've always been very judicious and not trying to have a lot of synergies in the sales area the first year.

That is such really great advice. So you basically you said three things which are the first two much easier said than done. And the third you can deal with some other pressures like from the board. Right. When you start talking about those synergies. But the first thing you said was maintaining the the revenue of the targeted company. So you bought that company for a reason. You want to make sure none of that particular revenue erodes or goes to the competitor, whatever happens there. Second thing you said was making sure that you keep your top talent. And then thirdly making sure that you're able to keep your synergies and exceed them but leave the sales organization alone as far as those synergy expectations, at least in the early days or for customer facing roles. And now I want to follow that up with a question. So we did a recent survey that had over 600 companies that responded and half of them had been involved in an acquisition over the last 12 months. And we asked them what were the biggest challenges that they had. And we had like seven or eight. But the top three were and I want to hear your feedback. The one was integrating the sales organization, integrating the two teams. The other was getting alignment across an overall go to market plan which that sounds like so big. Right. Another thing was the role definition. So just making sure that your teams have alignment on the roles and how they're defined. I'll give you a simple example of that because that was a big one for our clients. And inside sales at company A may be doing and behaving very differently than company B.1 could be entry level, a way to get into field sales. Another might be a professional of its own. And then finally cross selling and I'm sorry, there is one more incentive comp.

Yeah, cross selling is an elusive one.

Yeah.

I've always found that to be the most difficult. Every time we did a transaction to different PE company we had five different business units and they would say oh boy, if we could just cross sell more. Cross sell more Boy spent a lot of energy on it. We measured it, we compensated it. But I'll tell you, that's, that's probably the most difficult one. The three that come to mind to me. And those all resonate, right? They're all real issues. But you know, number one is the comp plans. Right. You know, they're likely to be very different. And comp plans speak a lot about culture of the organization. We bought one company and their comp plan was such that no salesperson could make more than their CEO. And we always viewed it as if we have a salesperson that makes more than their CEO, assuming that the right incentives are in place. That's awesome, right? So the comp plan is an area that you need to tread, you don't need to rush that one. There's a lot of complexity there that can demotivate the sales team. And we would typically you have to look at your cost of sales, but we'd be very intentional on the comp plans but not rush it. The second area is the territory planning realignment. Again, that is not an area to rush. You're going to have some obvious, most likely overlap in some accounts and so forth. Maybe the same decision maker or not. But there's just a lot of anxiety around territory planning. And I think we've always treaded lightly on that and intentionally and just communicate a lot. And the third is what you talked about is the alignment of the roles. An account manager, one company might be very reactive and an account manager in our company was a quota based farmer that drove growth year over year, 20%. So in the role definition, especially in our merger, it can cause a lot of consternation. That really has to be thought out. Well, so those are the three that I always think through. Even though the president of the company, I was involved heavily in all those decisions as we acquired companies. Just knowing if you weren't, if those weren't addressed correctly, inappropriately, you're going to have some problems. Involuntary attrition.