Making Dollars and Sense Out of Mergers & Acquisitions

One of the best ways to grow a business is through mergers and acquisitions. However, while increasing volume and market share is important, it can come at the expense of profit.

If you are considering a merger or acquisition, you'll be performing due diligence on many aspects of your partner's operations. Here are some issues relative to the sales force that you need to consider:

1. What sales force assets are you buying?

First, look at who is generating revenue. Check production levels for the past three years. Will the people who are producing most of the volume stay long enough after the merger or acquisition for you to get a return on your investment?

They might not if they had a close relationship with an owner or manager who will be leaving, if they will be uncomfortable in the new culture, or if they are nearing retirement. We've seen cases where 50% – in one case 80% – of the sales force quit shortly after an acquisition.

While you're looking at who is producing the volume, see if profit comes from the same sources. It's not unheard of for top producers to be the least profitable members of the sales force.

Also look for special alliances that may be the sources of significant revenue. Will those relationships continue after the merger or acquisition?

2. What is the value proposition this company offers to its sales force?

Do they pay above market rates? Do they pay below market rates and offer a lot of sales support, perquisites, or a particularly pleasant working environment?

Does what they are doing make sense? Are their plans aligned with the current needs of the sales force? They may be providing goods and services that aren't necessary anymore. As part of your due diligence, ask the sales representatives how they want to be paid. Find out what level of support, benefits and perquisites they want and need.

You may discover a major opportunity to rationalize the offering. We have seen cases where the entire acquisition was paid for by eliminating unnecessary benefits and services and realigning compensation plans to better serve the needs of the sales force.

3. What will result from combining the two companies?

Be aware that the value proposition they offer to their sales force changes as soon as you buy the company. Can your value proposition and theirs be merged?

Many companies underestimate the difficulty of integrating two sales forces. To simplify things and make the transition easier, many companies allow sales representatives to stay on their existing compensation plans for some length of time. But representatives are bound to compare commissions and hurt feelings can result.

It's particularly likely if one company pays more generously and the other offers more services. The company may find itself in a position where they are forced to combine the plans and end up providing a high level of services with a high commission. That's a recipe for disaster.

This is a great opportunity to introduce a new compensation structure for the combined company, one that is perceived as consistent and fair to everyone.

Most companies tend to rely on reducing duplicate costs to bolster the bottom line after a merger or acquisition. However, major cost savings can also be obtained from redesigning commission structures and re-aligning them with the goals and growth plans of the combined company.

Even more important is that enhancing the value proposition for sales associates motivates them at a time when it is particularly important to do that.