By Doug Sheridan, EnergyPoint Research One of the more common questions we’ve received over the years concerns the impact mergers and acquisitions have on customer satisfaction in the oilfield. It’s an important question, one deserving of a thoughtful response. With apologies to our many readers and friends who make their livings buying and selling companies (or helping others do the same), we note that plenty of evidence has been compiled over the years that suggests the majority of corporate mergers and acquisitions, when objectively examined, are not successful. A particularly thorough examination of the merits of these transactions was published by Denzil Rankine, executive chairman of the consulting firm AMR International. In his 2001 book entitled Why Acquisitions Fail, Rankine breaks out what he sees as the 20 key reasons acquisitions fall short of expectations. While Rankine’s list is certainly insightful and well-supported, like others we’ve seen it treats impacts on customers more as secondary issues. We, on the other hand, descry customer dissatisfaction and defections that occurs as a result of changes in ownership as direct, even major, contributing factors in M&A’s reputation as a frequent value destroyer. Think of it this way: Company A buys Company B. Typically, Company A is not purchasing Company B because it believes Company B to be better-run than itself. Nor does it typically believe Company B has better products or services, or possesses higher customer satisfaction (despite the fact that all might be true). Rather, Company A almost always believes it can run Company B better than Company B’s management. At the very least it believes it can do more with B’s assets. As a result, Company A tends to pay some kind of premium for Company B. In return, Company A’s management expects to call the shots. So, once the deal is completed, Company A’s management goes about integrating Company B’s assets, processes and people into its own organization. Company B’s customers begin to be brought into the Company-A fold as well. So far so good, right? Not really. One of the problems with change-of-ownership transactions is that managements at companies like Company A tend to forget that nobody ever asked Company B’s customers if they thought Company B should be bought.This matters because, in many cases, Company B’s customers not only don’t relish the idea of being integrated into Company A, they downright dread it. Experience has conditioned them so. As a result, they begin to shop around, sometimes even before a deal is completed. In many cases, they end up going elsewhere for their needs. So, here’s the rub and why we believe customer dissatisfaction plays a larger role in M&A under performance than is currently acknowledged: acquirers’ projections used to evaluate and justify acquisitions almost never account for lost revenues from customer defections and/or dissatisfaction. This is the case despite the fact history has shown time and again that customer defections and/or dissatisfaction tend to rise, sometimes immediately, after transactions are consummated. In Part 2 of this article we’ll examine more closely which types of acquisitions tend to detract from the overall customer experience, and which tend to be additive. Doug Sheridan is managing director and founder of EnergyPoint Research. This blog posting originally appeared on EnergyPoint Research’s website.
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