Pricing in Mergers & Acquisitions

Pricing in Mergers & Acquisitions

by Finn Hansen, Founder & CEO of Stratinis.

During mergers and acquisitions, there are many things to take into consideration for the integration of the two organizations. Pricing is, or should be, one of the key focus areas as a solid implementation of the new organization’s pricing, terms & conditions can deliver significant synergies and benefits – whereas a failed M&A pricing implementation will expose considerable risks and often loss of combined profits.

Imagine some examples of challenges when dealing with pricing in M&A:
  • If prices/terms/discounts are different between the two merging companies for roughly the same product/service – i.e. Company A charges 10 and Company B charges 12 today. In NewCo one would hope for a new price of at least 11, ideally 12, but if not managed well you could end up with 10 as the customer(s) exploit the situation.
  • Different discount or surcharge schemes exist (similar to price example above): customer ends up getting lowest common denominator – to the detriment of NewCo’s profits
  • Sales people give too many discounts/price concessions to secure their job in the NewCo (“look, I closed all my deals, so keep me”)
  • Customers refusing to recognise NewCo as new supplier unless they get some additional concessions – knowing that often senior management has something at stake with the acquisition and therefore they can pressurize sales teams into giving concessions.
  • Pricing/Sales teams don’t understand the value pricing of their new colleagues: Company A has a different value pricing approach than Company B and the sales people in NewCo that used to work for Company A are not able to properly value-sell Company B products, or vice-versa.
  • Pricing synergies (often being bigger and with more market power, within legal limits) are not materializing, as sales people don’t understand how to negotiate in the new environment - at least not for 1-2 years, meaning 1-2 years of synergies are lost.
A good M&A pricing implementation program takes into consideration a number of factors, including:
  • Modelling: understanding current pricing as well as NewCo pricing options. Build models for allowing simulations of new NewCo pricing approaches. A tool like Stratinis Pricing can help support this process.
  • Internal strategy and people alignment
  • Internal materials to provide to pricing management but especially also sales people so they negotiate and achieve the best possible prices for NewCo
  • Internal communication
  • Internal training of sales team in new pricing model for NewCo
  • External materials to be shared with customers during communication and negotiation of new prices/discounts/terms
  • External Communication
  • Negotiation – support, follow-up, and crisis handling for larger key accounts  

Finn Hansen is the founder and CEO of Stratinis and has strong personal experience in this field from working with several multinational companies in implementing a strong pricing approach for merged organizations. In one global example the estimated benefits in operating income from this programme was USD 40 million annually. In another global business, the improvement in prices over 12 months after the acquisition concluded was EUR 24 million on combined sales of app 700 million.

Head over to Stratinis’ website and learn about how their Pricing Software can help manage and simulate AS-IS and TO-BE prices/discounts/terms and conditions.

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