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Robert Wood
By
February 13, 2017

Acquisitions Gone Bad – Don’t Do it!

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In my previous discussion, Acquisitions Gone Bad - A Discussion Based on Observation, I explored my experiences in what goes wrong when a company buys another on the wrong foundation.  I used a tongue-in-cheek rule I called “Robert’s Rules of Bad Acquisitions”, or RRBA.  The first and most important of these rules, RRBA 1 is: The acquiring company assumes superiority. And like I mentioned earlier I explored many of the consequences of this rule on the poor outcomes of many deals gone bad.  There is a single topic affected by this rule that dominates all the others combined and that is this: The virtual elimination of the Marketing and Sales teams in the acquired companies proved almost fatal and amounted to the majority of the issues and losses in the deal. 

Before we go further, and to show the reader that I’m not some marketing guy doing some self-aggrandizing bloviating, let me explain my old bias against the people I’m going to defend shortly.  I started my career in applied research and then into consumer product design and development. Naturally in this capacity I worked alongside of the Marketing and Sales team.  In many cases it was my function, R&D, that led the innovation and features of the new product. Once the product was launched, I noticed an amazing thing: whenever a new product was launched, the Marketing and Sales team claimed victory if the product was successful, and held no responsibility if it failed!  If the product was a hit, well that was because of the brilliant marketing program and the aggressive sales team.  If the product flopped, well that was because R&D couldn’t deliver on their vision!  Besides, these Marketing and Sales guys always wore crazy expensive clothes, always seemed to be having fun all the time, and always had lobster and live singers at their off-sites, while I was having corndogs and karaoke at mine.  So now that I’ve established my ‘neutrality’ on the matter, let me explain why eliminating or reducing this team in the post-acquisition process is the worst thing any company can do.

Referring to my earlier discussion, the reason most acquisitions happen is that the acquiring company sees an incremental value in the target company.  Sometimes it is expanding its product portfolio into new markets, sometimes its diversification, others its margin improvement.  Regardless of the reason, the acquiring company values the assets of the target and usually pays too much to get it. Rarely is the reason of the purchase of the target company is to add a few new offerings in the product catalog in the same sales channel to the exact same customers.  Now my experiences fall into the Pharma, Biotech, and Medical Device space, but this discussion is valid for any market. The reasons for most acquisitions are to reach new markets, expand the customer base, and to add diversity to the business.  This is where RRBA 1 comes in.  Somewhere in the courtship in the acquisition process, someone, (actually many), of the executives of the acquiring company sees an opportunity to gain “efficiencies” in the elimination or the severe reduction of the target’s Marketing and Sales function.  “After all, our team are surely better that of the acquired company.  Yes, the products are different, and the sales channel are to a different segment of the market, but our guys can handle that, they’re that good!”  As crazy as that quote sounds, I’ve heard it and seen it many times, and it’s the first click of the time bomb that will eventually blow up in their faces.

In my industry, there is a huge difference in selling an implantable versus selling a capital product, (think heart valves versus a CAT-scan machine), even to the same hospital.  The sales calls frequency are different.  Capital sales are usually short affairs. There is courtship, but once the sale occurs, the salesman is off to court another bride. While selling implantables is a long term relationship.  The sales professional makes many calls over a very long time to gain the trust of the doctor.  The sales point is different:  Implantables focus on the surgeon, the CAT scan on the radiologist. The marketing strategy differs also.  Here the knowledge of the product and the completion comes into play.  The Marketing team has years of experiences specializing in the product class and knows through data and relationships the trends and landmines in the product cycle. The target company was purchased for the future value of its product offering and many times eliminates the very people that that future value was based on: the Marketing and Sales team. Here’s where the vision of the dope cutting off the branch he’s sitting on comes to mind.

So what is a company supposed to do?  Unless the products of the acquiring company are in the exact same channel, customers, and distribution as your current products, do not reduce the target’s Marketing and Sales team for at least a year to 18 months after the dust settles. You’ll likely find that the value of the acquired team is exceeding the expectations, even though it costs more than you think its worth, and you will likely keep most of the old structure and people intact.  Second, if you cannot justify the deal financially with the “efficiencies” of eliminating functions, then do not do the deal.  Walk away from the beautiful bride because there’s a divorce around the corner. And lastly, always check your ego to see if you’re falling into the trap of RRBA 1: The acquiring company assumes superiority.  After all, the goal of any acquisition is to add value, and the value of any firm are the people, not the products, of the company.

Hopefully, you’ve gained some insight on this topic, and to those Marketing and Sales professionals reading this, next time you have one of those blowout meetings with clowns, tigers, and dancers, invite some of those geeks with pocket protectors to the affair, it will make a larger difference than you could know.

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