Why Product Management needs a seat at the M&A table

Toby Tester

Delivering value from Mergers & Acquisitions (M&A), just like product management, is cross-functional in nature.

As of this moment, M&A activity has come to a shuddering halt as COVID-19 makes us aware of stark choices between life, death and the economy. But once the worst of this pandemic is over, it will surely return with renewed activity as organisations start repairing the damage this virus has wrought on business models and balance-sheets. While these organisations will no doubt look to M&A as a driver of sustained and profitable business growth, they’re also likely to use M&A to transform themselves.

Just last year, around 60% of all M&A deals were about new products, services, technologies, markets and capabilities. This is where Product Management can help. Product Management encompasses a number of disciplines critical to the success of most, if not all, revenue focused market-based deals. For this reason, CEOs, deal makers and M&A Integration managers should give product management the recognition it deserves with a seat at the M&A table.

Here are the three things every CEO, deal maker and senior executive should know about Product Management.

  1. Product Management brings an ‘outside-in’ mindset

Inside-out thinking is the default mode in most organisations. It means looking, thinking and designing processes, systems, and products based on an internal logic independent of what may occur outside. Customer needs, wants and motivations may only play a peripheral part at best with this type of thinking. When decisions are made, it’s principally on what’s best for the business.

Outside-in thinking, on the other hand, is about looking, thinking and designing processes, systems, and products from the customer’s perspective. This means working hard to better understand customer needs, wants and motivations. When decisions are made, it’s principally on what’s best for the customer.

This presents a problem and an important reminder for deal makers that they don’t fall into the inside-out thinking trap. Unlike business assets, customers cannot be bought or sold in the same way. Deal makers may hope that when an acquisition is made, customers will come along too. It just cannot be taken for granted.

Unlike business assets, customers cannot be bought or sold in the same way

For example, let’s say an organisation wants to diversify its operations by acquiring a business that’s complementary in terms of the products and services it offers. The strategic rationale is that an expansion of the organisation’s footprint with a larger product portfolio would deliver additional revenue through new products, along with cross-selling and bundling opportunities. It sounds perfectly reasonable, and with no opposing views within the organisation, the deal goes ahead. The problem is that customers, the final arbiters of an acquisition’s success, may think otherwise! Executives may therefore find themselves unpleasantly surprised when customers do not act in the way they expected. Here’s an HBR article by Graham Kenny that makes this point more emphatically:  Don’t Make This Common M&A Mistake.

The customer is the final arbiter of an acquisition’s success

Now a product manager will tell you that when you are coming up with customer solutions it presupposes there are customer problems to be solved. From a product management perspective, understanding the problems always comes before the solution. If you don’t do this then you really don’t know what you are solving.

For instance, if a deal maker is looking at a potential acquisition, make sure top-down revenue synergy forecasts are being counterbalanced with bottom-up customer insights. A deal maker should probe into the following:

  • The strength of customer relationships
  • Share of wallet compared to competitors
  • Other products/services customers purchase
  • Motivations and jobs being achieved
  • Customer experience, pain points and obstacles
  • Outcomes customers are seeking

Moreover, it would be also seriously worthwhile to go out and actually talk to customers on what they value most, what they like and don’t like. Use them as a sounding board before inking a deal.

Speak to customers, use them as a sounding board before inking a deal

One more suggestion. When a deal is being contemplated that impacts the customer, make sure there’s a person who assumes the role of customer advocate with a seat at the M&A table.  At this table there will be the finance and accounting specialists looking after shareholder needs, human resource specialists working on behalf of staff; so there needs to be someone who’s there on behalf of the customer. I reckon the best person to be that customer advocate would be the firm’s top product manager.

Make sure there’s a customer advocate at the M&A table

  1. Product Management is the function that unifies other functions

Silos run deep in organisations – something we are all well aware of.  For example, M&A integration projects are commonly structured to reflect the various departments with representatives from Finance, HR, IT, Sales and so on. This is traditionally the way things are done. However, the downside of this approach is that each of these representatives will address their own business priorities, functional needs and performance requirements. In this situation, products and customers are thought of and treated in a way that’s most convenient and beneficial from a departmental perspective. As a result, the cross-functional nature of business and the true drivers of M&A success are lost in the process.

Product management, as a business function, can redress this organisational imbalance. Product Management can and should operate as the organisation’s backbone, orchestrating product related activities across all business functions so that decisions are made and translated into meaningful actions in support of the product portfolio and customer experience. This means working across departments, building relationships, and being the “connective tissue” so that changes critical to product and customer success don’t fall between the chairs.

`Product managers can be connective tissue in M&A deals

  1. Product Management accepts the reality of uncertainty

The world of M&A in many ways is very transactional in its approach. It’s a way of thinking and behaving that follows a set of industry norms associated with buying or selling a business – go to the market, make a deal, get it closed. It’s a management paradigm that seeks efficiency, standardisation and continuity. There’s no inherent problem with this approach; that’s how transactions work. The issue is that it’s common to see this transactional way of thinking and behaving infiltrating the rest of the M&A process: from initial strategy through to integration. When this occurs, the world of M&A becomes a reductionist exercise that only focuses on those things that are unambiguous and certain.

The world of product management is different. When dealing with customers and customer needs, product managers have to live and breathe in a world perennially filled with ambiguity and uncertainty – it’s something that goes with the territory. Product managers know, understand, and dare I say, even draw comfort from this fact. It’s also the reason why Product Management and “Agile” work so well together – they both accept the uncertain nature of reality.  It’s perhaps this quality that makes Product Management so critical in the pursuit of revenue opportunities from an M&A deal.

So when working on a deal that’s customer and growth focused, Product Managers can help shift the mindset in a way that embraces attitudes and behaviours that are more innovative, transformational and agile rather than M&A’s more familiar transactional approach. Moreover, product managers can help organisations step on the revenue synergy accelerator and turbo-charge the delivery of customer value as part of an integration program.

In summary, the key takeaways from this post:

  1. It is inherently dangerous and seriously misguided for deal makers, corporate development specialists and CEOs to consider how customer solutions could be delivered from a deal without fully understanding what the customer problems might be.
  2. Customers cannot be bought or sold in the same way as business assets. When an acquisition is made it cannot be taken for granted that customers will come along too.
  3. When making top-down revenue synergy forecasts from a potential M&A deal make sure it’s counterbalanced with bottom-up customer insights.
  4. If a product/service focused deal is being contemplated it would be seriously worthwhile to go out and talk to the target customers on what they most value, what they like and don’t like. Use them as a sounding board before inking any deal.
  5. Make sure there’s a customer advocate (a person who represents customer needs, similar to shareholders and staff) on the M&A management team.

You can read more posts from Toby on M&A via his LinkedIn profile.

Note: I added the prefix ‘modern day’ to Product Management deliberately.  I should say that in many industries product management is interpreted and carried out in a variety of different ways.  Unlike project management there’s no universal consensus on what Product Management actually is. So, when I say ‘modern day’, I’m referring to Product Management as a leadership function responsible for the strategic, systematic and holistic management of products and services.

What’s next?

Toby Tester

Toby Tester | Author

Toby is an Australian-based M&A specialist with over 20 years experience working on deals around the world. He graduated from Imperial College London with an honours degree in Aeronautical Engineering and also has an MBA in Strategy and Corporate Finance from Macquarie University.

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