Mergers and Acquisitions (M&A) is one of the many ways companies do restructuring.  Companies pursue M&A for one of the two major reasons; either when their organic growth appears stalled or when they find synergistic advantage from a potential merger or acquisition which can possibly reach out to new markets or introduce complementary products and services. Increasing mobility of human capital, innovation in science and technology, and advances in social media continue to impact how companies run their business and connect with customers, compelling firms to design products and services that best meet customers’ continually changing needs. Also, when a product matures in its lifecycle, companies must launch new products to satisfy customers’ new preferences, and the cycle goes on. By acquiring new companies or merging with already more successful ones, firms can thrive and continue to create and maximise shareholders value, the ultimate objective of any firm.

Majority fail

Despite the prospect of large gains from M&As, research suggests that the majority of restructuring efforts have been a fiasco. Especially when the firms directly serve a large base of customers such as retail banking or hospitality operations, a merger or acquisition becomes an Achilles heel.  When two companies merge, an air of uncertainty and potential doom looms over people, processes and systems.

Employees fret in the first place about their job security, and customers try to defect.  Customers of a retail bank may resort to deposit withdrawals in masses while a clothing store may see lower sales and smaller crowds. Customer defections are a major reason why more than half of all mergers fail to deliver the intended improvement in shareholder value. The trouble is that merged companies tend to focus primarily on quickly capturing synergies and avoiding major technology disasters losing sight of customers at the time when they are most likely to bail.

The fact that globally only about eight percent of the companies undergoing mergers and acquisitions have had true success explains a lot about the hiccups of firm restructuring. Firms typically perform extensive due diligence about synergies, cost savings, cultural intricacies and technological challenges before they decide to venture into restructuring, but still fail.  It is often the case that customer base becomes the last piece of the puzzle and never gets as much scrutiny beforehand, which only highlights the core of the problem. History is littered with examples of companies that have experienced mass customer defections when undergoing a merger. In banking, for example, the average customer attrition rate of around 15 percent can double following a merger, and remain that high for an extended period of time before returning to normal.

Customers watch carefully if the level of service delivery erodes after a merger and to what extent. This means that early signals of improved service carry a lot of weight. Some businesses identify and accelerate actions to improve the customer experience. When two companies merge, they embark on seemingly minor changes that can make a big difference to customers, causing even the most loyal to reevaluate their relationship with the company.

Importance of communication

Mergers often involve changes to product structure, fees, personnel and branch locations. But the way these changes are communicated can make a big difference in how customers perceive and accept them. This means doing more than sending out standard, dry, legalistic account notifications. Communication that is easy to understand, respectful and thoroughly addressing customer concerns and explaining what new changes mean for them can be a key to alleviate the clientele’s worries.

Most important of all, both the acquiring entity and to-be-acquired entity should send uniform communication assuring their patrons that they will not be impacted by changes and they should expect continued services and products. Both companies should also state that potential internal changes, if any, will only

benefit customers.

However, before an organisation can create an effective customer communication plan, it needs a well-developed employee communication plan. To ensure that interactions with customers are positive and consistent with outgoing organisational messages, employees must understand how the transition will occur and how they will be a part of the process.

Communication needs to begin well in advance to combat negative atmosphere as portrayed through ‘layoffs’ and ‘cost-cutting’ rumours. Firms should make employees feel that they are true partners by hosting open meetings where they are encouraged to express their concerns.  Honesty is the best policy when it comes to communication, especially if it negatively impacts certain employees.  It is also important that mid-level managers are not just communicated but also consulted in potential organisational changes including policy and process improvement as without their buy-in, firms will face an uphill battle to effectively implement the change.

If employees feel management is keeping information from them, quite understandably they start feeling anxious. When people are uncertain, they start speculating about the clues in front of them. Productivity starts to drop as staff waste time in circulating rumours, develop unfounded theories and become disgruntled. This in turn reduces employee morale and performance, which can lead to customer dissatisfaction and withdrawal, and ultimately to the failure of the organisation. So organisations should have a robust communication structure and information flow to increase the chances of the M&A’s success.

Pant is head of Corporate Affairs and Business Planning Officer at Prabhu Bank, Kathmandu