Seasons Greetings!
I wish everyone a wonderful holiday season and an outstanding New Year in 2011! As you can see below, we are in a transition into a year of promising outcomes.
Thanks for being part of the Beyond the Deal Newsletter community. We appreciate your inputs and look for our vibrant community to grow over the next year.
All the best,
Jay Chatzkel, Editor
M&A’S To Hit $3 Trillion in 2011, According to Report: The Integration 2.0 Approach and the Rise of the “New Normal”
The New York Times DealBook has commented that “The recent rebound in mergers and acquisitions is expected to strengthen significantly next year, according to a new report, with global deal activity on track to rise 36 percent, to $3.04 trillion.”
This would be the highest amount since 2007, when the market registered $4.28 trillion in deals in the months prior to the financial crisis.
“A widespread surge in confidence will power the rally, according to the report, a joint project by Thomson Reuters and Freeman Consulting Services that included interviews with 150 executives from a broad swath of industries.”
$3 trillion is a lot of money but this is still lower that pre-recession levels. The comment is that the appetite for deal is gaining momentum in spite of lingering credit concerns.
So, the pace is picking up. But are we just repeating the cycle with the same approaches and practices? Yes and no. Despite the dropping out of the bottom of the economy and all of the talk of the “new normal”, the “old normal” of tactical acquisitions focusing on deal pricing continues dominate the thinking and practices of many firms. At the same time, some firms like Southwest Airlines, are revisiting their strategic models and realizing that they need to reframe themselves to be competitive over the next number of years. Additionally new tools and approaches are coming together in the Integration 2.0 model that continues to be discussed in this Newsletter.
The companies that grasp the Integration 2.0 approach will be able to leverage greater gains though more agile processes and an understanding that the real work of the integration is to engage all parties in contributing to the bringing the two companies together as one transforming new organization. These companies most likely will be a minority but they will also be the real winners in the M&A upswing.
Springboard #1: Identifying the Customer Strategy for Your Newly Combined Company
Setting in place the right set of springboards is necessary if an acquiring company wants to achieve a quantum leap integration. The first springboard involves identifying your renewed customer strategy and building your brand framework from that.
This customer strategy should outline how your company will provide value to different segments of your customer base. It should identify the brand experience and levels of customer relationships that your company is seeking to obtain. A good customer strategy examines the new customer franchise that has been brought about by the acquisition and finds new ways of leveraging this franchise as a whole. The key requirement is for our company to reexamine your previous assumptions as how how to segment and approach your customer franchise.
An effective customer strategy is geared toward making sure that your new company is focused on your most profitable customers and reinforces the relationships with those customers, but also aims to grow a customer base that values your company’s updated suite of products and services.
Your emerging company should work to define the footprint you seek to occupy in your new market space, given your newly combined capabilities and configuration. This space is likely to be different from what it was before the acquisition because your new company will have new products and/or services and possibly new distribution channels to reach customers whom you could not reach before. In other words, you need to define your market space in terms of:
- Who your customers are
- How you segment those customers
- How that corresponds to your company’s brand
A way to get a handle on this to map out your responses to the questions below:
- What is the new customer franchise of our newly combined company? How does it differ from the customer franchise we had before we acquired this new company? What new opportunities does this present to us?
- Is there any merit in keeping the two franchises of our new company separate? If now, how will we segment our new customer franchise?
- Given the configuration of our new customer franchise, how can we accelerate its growth with the acquisition of new customers?
- What new approach, if any, do we need in order to deal with different customer segments?
- How will we structure the portfolio of brands involved in our new company? Are the existing brands best kept separate? Is there any advantage in double branding?
- How can we ensure that the combined capabilities of our new company are brought to bear to meet the needs of our customer segments?
- What are the most profitable segments of our new combined franchise? Is there any justification for dropping the less profitable segments?
Examining what customer strategy you have is the first step. Seeing how you will move forward to reframe that strategy in light of the significant acquisition is a major challenge but one that will be a springboard to establishing the framework, practices and offerings that will create major additional value for your universe of current and potential customers.
The next Beyond the Deal Blog will look into Springboard #2: Setting the Company Strategy for Your Newly Combined Firm.
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