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Revenue Roundtable Video Podcast: Mergers & Acquisitions & Pricing, Oh My!

Mitch Lee< Mitch Lee October 5, 2021

In our latest installment of Revenue Roundtable, we explore a fascinating area: How do pricing teams deal with a merger or acquisition?  

Mitchell Lee, Profit Evangelist at Vendavo, is joined by Ben Blaney, Vice President, Business Consulting, as they discuss the steps pricing and selling professionals can take to manage the situation when their company makes an acquisition or merger – or when they’re on the “bought” side of an M&A.

Mitch: It’s a super interesting topic: mergers and acquisitions. There’s a  tremendous amount of activity in terms of people going out and buying new companies. Let’s talk about what happens in terms of running that as a business.

Ben:  Many people have noticed when a public company announces that they will be buying another company, whether the acquired company is public or not, the acquirer gets crushed in the stock market. This stock takes a 1, 2, 3, 4% hit.

Mitch:  Almost every time.

Ben: There’s one exception that I can think of – when Amazon bought Whole Foods, about four years ago. The transaction amount was $14 billion. You’d expect Amazon to take a little hit, but it didn’t – Amazon’s market CAP went up by $13 or 14 billion. Effectively, if you were an Amazon shareholder at that time you got Whole Foods for free, which was nice, but it doesn’t usually happen that way.

So what’s going on? Why is the street punishing a company for buying another company?  It’s because the stock market is a voting machine on the future. So what the market is saying is, “we don’t think this is going to work out well for the owners of the acquiring company; this is not going to be an improvement on the situation.”

The market is always about risk. There are elements of an M&A transaction that are all about cost savings. If I become a bigger company, I can negotiate harder with my vendors, because I’m now a more important part of that customer base. I can consolidate factories, maybe I can get some rationalization and support functions inside the organization, maybe there’s some cost savings there, and these are all built into the business case for doing acquisitions every single time.

My view is that risk is always in the commercial sense. The market is saying, “look, you can buy this company, but how are you going to commercialize the new enterprise?” There’s risk involved in doing that well.

Mitch:  Sellers are looking at more catalogs but that brings the commercial difficulties – there’re more products to learn. What do you do with all those prices? What’s the pricing function looking at here in an M&A?

Ben: I’ve been on the acquired side of this situation. What you need is to be able to quickly price the legacy products of the buying company, and the newly acquired products of the company you’ve bought, and any connections between the two if you’ve bought this company, because they are complementary in some way. 

You’ll want to price some products with relativity to the new products that you’ve acquired. it may change the nature of your good-better-best continuum. It may change the nature of your small-medium-large pack sizes and product offerings. It may change the way you bundle products. The key functional need is the ability to quickly make these changes, quickly apply the rules and the structures that you have in place but also to absorb new products, their attributes, their characteristics, and their performance indicators.

In lots of industries, there’s an initial price, a market price, a channel price, some people might call a list price or repressed…those are the beginning points for negotiations; they’re market indicators. 

The next thing to talk about is: How do we create recommendations to sellers? Well, “here’s a product you’ve never sold before. Here is a good price for it, and here’s a poor price relative to that established list or book price, and it’s the same story, but with a different focus now.” Now you need to import historical data into the models that you have, creating these price recommendations that you know got different comparisons; you’re creating new peer group analysis, and that can be hard to do. Luckily, there are solutions out there that make that very easy.

Mitch: What will people look for on the selling side?

Ben: When a seller is being asked to sell products that they don’t really know very much about, you’re going to have to help them…allow sellers to answer a few basic questions to provide a few capabilities requested by their customers, and then present the products that are appropriate for those circumstances. This is a category of intelligence called guided selling, and deploying guided selling quickly to help sellers make these decisions is really important.

A second piece that’s tremendously important here is obviously to connect with the price recommendations we just talked about, and then round out the product offering the solution offering for any given circumstance, by providing recommendations.

Say you’re selling an item from the legacy catalog – that’s nice, what you should know is there’s also an item in the new catalog that we have available. That would go very well and buyers who buy that thing should also buy the other thing. Doing that recommendation engine for cross-selling and upselling is tremendously important when you’re smashing together two businesses, two product catalogs.