European Consolidation Board for Foreign Industry (ECBFI)



After a merger, managers should ignore the usual advice to strive primarily for improving the bottom line through cost reductions. Instead they should make it a priority to strengthen sales and marketing in order to sustain profitable revenue growth. That’s because revenue growth is necessary for earnings growth, the most reliable engine for driving total shareholder returns over the long terms.

These insights came from our recent study of 270 mergers in various countries and regions. We found that in most cases sales growth had slowed dramatically after the merger—on average, it had dropped six percentage points. (The figures in this article are weighted averages adjusted for industry trends and refer to three years pre- or postmerger.) That decline led to a reduced rate of earnings growth, by 9.4 percentage points, and a consequent reduction in value creation: The firms’ market-capitalization growth decreased by 2.5 percentage points.

There’s no shortage of articles and books that say synergies are the key to a financially successful merger, and many executives seem to take the advice to heart. Indeed, in most of the mergers we studied, cost synergies such as consolidating manufacturing sites and centralizing administrative functions did boost profitability. But these efforts didn’t by themselves lead to growth and therefore didn’t create real value.


 In some mergers, the operating profit margin of the resulting corporation are higher than the weighted average of the pre-merger firms’ profit margins, but market-cap growth slid from positive to negative, eroding by more than 62 percentage points.

Earnings growth, our data show, has a strong effect on value creation, and the effect becomes more pronounced over longer periods of time. Therefore, the postmerger firms must throw themselves into preventing or offsetting the customer attrition (often the result of diminished trust) that usually follows a merger. Managers must devote sufficient resources to retaining current customers and gaining new ones. That typically involves improving the customer experience by streamlining processes; creating consistent marketing messages on how the merger will improve offerings; minimizing changes in sales-account managers; ensuring that the formerly distinct companies present a single face to the customer; and attending to trivial-sounding but important matters like making sure the merged sales force has the correct name for each contact.
A number of companies have shown that such tactics can even help improve
 postmerger growth, regardless of whether synergies yield cost improvement. For instance, the merger of two large construction-equipment companies led to a decline in the operating profit margin.
Synergies can be beneficial in many ways. A lower cost structure might allow a company to shift its emphasis to a more price-sensitive market segment, for example, generating new sources of revenue. But managers should seek synergies only after focusing intently on sales and marketing, for the quest to reduce redundancies and costs could draw their attention away from markets and customers—where real value lies.

As merger opportunities continue to present themselves in today’s stormy markets, post-merger integration issues have moved to the forefront of everyone’s mind. Ideally, merging two companies is a seamless process. But, in reality, most of the time it is a bumpy ride at best. It is crucial for M&A professionals to prioritize certain integration issues. Communication is considered the most important factor in determining a merger’s success, and is often the one component of post-merger integration on which all others depend. Ultimately, the success or failure of a merger may be hard to estimate in the years immediately following its completion. Therefore, communicating goals and strategies should be top priority for management teams from the very beginning. To help smooth out potential cultural wrinkles, many companies use virtual data rooms (VDRs) to facilitate communication and Human Resources due diligence review.

The European Consolidation Board has also created a pack for administrators to review employee records in a secure environment, streamlining the acquisition process and post merger integration. While all the information remains confidential, HR executives are better informed about the caliber of the employees they will be dealing with throughout the integration process. Merrill DataSite’s Virtual Data Room (VDR) makes the integration process more efficient and productive by allowing HR and newly formed management teams to have access to all employee files of both companies in order to assess the best candidates moving forward.


 Our Merger Integration Planning Practice can assist ECBFI Clients in preparing a detailed post-merger integration plan and managing your post-merger integration teams. We leverage a proven methodology that fosters speed, leadership, direction, accountability, and results. We believe this Pack provides an excellent complement to our due diligence capabilities, allowing us to connect the pre-deal phase directly to the post-deal phase at the earliest possible stage and thereby greatly increase the likelihood that the transaction will be successful.

These folder Service Packs are also available on DVD and USB if preferred. Please inform us if you would prefer both.