The signs are pointing to another blockbuster year for mergers and acquisitions. According to a recent Deloitte report, M&A deals are set to accelerate in 2018. More than two-thirds of executives at U.S. headquartered companies and 76% of leaders at domestic-based private equity firms say they expect deal flow to increase in the next 12 months.
This upsurge follows an already strong 2017, in which over $3.5 trillion was posted in M&A deals.
Historically, however, the success rate for M&A deals hasn’t been as positive. Research shows that over 50% of M&A plans fail, and more than 60% of M&A deals hurt shareholder value.
The biggest challenge for any M&A deal is post-merger integration. Effective integration ranks consistently as one of the top three most important factors for M&A success. By integrating well, McKinsey & Company finds that companies can deliver as much as 6 to 12% higher total return to shareholders (TRS).
Within that scope, integrating the sales organization is arguably the most difficult and the most important. Without a clear path to drive and maintain sales momentum, sales teams can flounder, resulting in lost opportunities and revenue.
Avoiding the Common Sales Pitfalls of M&A Activity
M&A activity can create fear, uncertainty, and doubt (FUD) across sales organizations. Sales reps worry that they may lose selling opportunities through territory adjustments or product line changes. Executives worry about the impact of post-merger chaos and confusion on sales productivity and revenue growth. Managers worry about an underperforming sales team and losing the best people to competitors or dissatisfaction. All of these factors can affect the deal’s potential success.
Sales performance management (SPM) software helps address these pain points. With SPM solutions, organizations can hit the ground running with: modernized sales technologies to empower the team; a centralized location for critical sales data; and prescriptive and data-based processes for building territories, setting quotas, and designing incentive compensation plans.
Using intelligent SPM solutions, organizations increase their odds of M&A success by:
- Speeding and streamlining sales planning and optimization
- Building trust with transparency
- Maintaining sales focus and motivation
Adopting Faster, More Effective Sales Planning Processes
Before the press release even hits the wire, companies involved in M&A activity are already thinking about how they’re going to consolidate product lines and implement price changes. But what the sales team really wants to know is:
What’s my new territory? How will it impact my bottom line?
Sales territory distribution is almost universally affected by M&A activity. Typically, if organizations have any sales operations within the same country, there will be overlap. In a region where you previously had 5 sales reps, you may now have 10. Companies must quickly determine if the sales potential supports the increased coverage and make needed adjustments.
Many companies still rely on maps and spreadsheets to do territory design and planning – a painful, labor-intensive, and time-consuming process. Consequently, most organizations only conduct territory planning on an annual basis. In the case of M&A deals, organizations are suddenly faced with the need to quickly realign territories.
Territory design software helps companies streamline planning and organizational integration processes. Automated territory mapping software makes it simpler and faster to design and optimize new territories for newly merged sales organizations. Additionally, with advanced, purpose-built territory planning software, organizations can leverage a data-driven approach to territory design and distribution.
Nothing upsets a sales team more than unfair territory distribution – or the perception of unfairness. With data insights, organizations can ensure an equal distribution of workload and sales potential for all salespeople, maximizing productivity and ensuring a fair distribution of opportunity.
Reducing Territory Alignment Administration from Weeks to Hours
After the completion of a major acquisition, a global medical technology chose Xactly’s territory design software to quickly realign territories and combine two sales forces. With an intuitive, interactive, map-based interface, the solution allowed them to easily view possible territory alignments and input different sales potential and workload factors. After evaluating 10 “what if” scenarios, they were able to select the best one for their business.
By using intelligent and automated territory planning, this customer reduced their territory alignment administration from four weeks to four hours – a substantial reduction in the time required for territory planning.
In the case of a $40 million SaaS software provider, the company needed to demonstrate improved operations following an acquisition. By using advanced territory design software, the company increased productivity with more travel efficient territories, lowering selling costs by 20% in one year.
Building Trust with Transparency
Nothing erodes trust faster than inaccurate and delayed payouts. The last thing you want to do during M&A activity is create more problems with employee worries about getting paid right and on time.
In addition, if employees don’t have confidence in how they’re paid, they’re going to start shadow accounting to make sure they’re getting what’s due to them. This takes away valuable time that should be spent selling – precisely what you don’t need going into a merger or acquisition.
Incentive compensation management (ICM) software keeps the focus where it’s needed during any M&A activity – on selling.
ICM software also gives leadership visibility into one of their organization’s largest expenses – commissions. If an organization pays each salesperson $100K in incentive comp, with 500 salespeople, you’re talking about $50 million per year. That’s a big investment!
ICM software gives executives visibility into how those dollars are working for the business and, with increased accuracy, eliminates the risks of overpayments.
Even if an organization doesn’t change comp plans immediately, an ICM solution can be invaluable in its ability to automate and simplify the administration, calculation, and reporting of variable-based compensation plans.
Likewise, when you’re bringing two sales teams together, it’s important to be transparent about the methodology being used to design new territories. When teams understand the process is based on data, you increase trust within the sales organization.
Maintaining Sales Focus and Motivation
In the Forbes article 4 Key Tenets of Employee Wellness That Drive Business Success, Xactly CEO Chris Cabrera states, “Compensation has been traditionally viewed as a way to pay for performance. But more and more companies are now turning to compensation as a way to improve employee engagement, motivate positive behaviors, and build a stronger workforce. By increasing employee wellness in these ways, companies reap multiple benefits – key among them being more satisfied customers.”
There is no time as critical to ensuring customer satisfaction than when undergoing M&A activity. Competitors will be lurking, waiting for the slightest misstep in order to pounce on the opportunity.
Maintaining a superior customer experience is essential. To do so, you need appropriately incented and motivated employees. According to Aberdeen Group, best-in-class companies are 45% more likely to leverage special incentives to drive sales rep behavior and business results. By using the right mix of variable pay and sales incentives, organizations can keep the sales team motivated, drive performance, and ensure a customer-centric approach during a merger or acquisition.
Moreover, the most advanced SPM software will also include analytics. With over 12 years of aggregated pay and performance data, for example, Xactly Insights lets organizations quickly see how they compare with their peers to ensure that their incentive compensation practices are competitive with the market, as well as based on best practices. This internal and external benchmarking capability ensures that you’re using incentives in the right way to motivate performance.
Mergers and acquisitions give companies the ability to rapidly grow, quickly gain new expertise, expand into a new market, or strengthen their existing solution portfolio. However, to fully capitalize on the opportunity, organizations must pay close attention to sales integration.
SPM solutions make it easier to quickly combine sales forces and hit the ground running without losing any momentum by:
- Shortening the time spent on territory design and planning by up to 75%
- Improving sales forecasting accuracy by 96%
- Ensuring timely and error-free commission payouts
SPM technologies, such as territory design and ICM software, help alleviate discourse by instilling a culture of trust. By reducing questions and delays regarding territories, incentive compensation plans, and bonuses, SPM solutions help lower potential turnover of top talent and alleviate the fear, uncertainty, and doubt that can often paralyze newly merged sales organizations.
To learn more, watch Xactly and Simon-Kucher’s on-demand webinar.