The economic downturn and the COVID-19 pandemic have forced companies to rethink their business strategies and explore new revenue opportunities. For some, that has led to growth, while others have struggled to compete. Despite the economic uncertainty, the window for mergers and acquisitions (M&A) has remained open (even if only slightly), and will get larger as companies adjust to this next version of normal. During the 2008 recession, M&A deals were down 31% year-over-year, but there were small pockets of opportunity for those who did their homework prior to the downturn, which allowed them to take advantage of the current landscape. We expect the same will hold true in the latter part of 2020 and into the new year.
M&As are a long, arduous process for any organization. In fact, studies have shown that 70 to 90% of M&As fail, making a clear strategy and plan for execution critical. There are so many layers to consider; beyond merging revenue streams, companies need to blend cultures, make branding changes, differentiate product sets, establish new leadership, and shift job functions. Organizations need to dive deep into their M&A strategy in order to make effective decisions, as these decisions will shape the long-term success of the new company.
Managed service providers who have found their ideal partner company need to remind themselves throughout the process that there will be ebbs and flows. Here are three tips MSPs should consider during the M&A process:
Manage Leadership Changes
Leadership changes are one of the biggest challenges in any M&A situation, and likely the most sensitive area to address. While some role changes may be accepted with open arms, others who have worked in the organization for years may feel as though they have been displaced. As such, leaders should approach any role changes strategically, cautiously, and with empathy.
When it comes to making decisions at the executive level, a unanimous decision among the executive team is important to ensure that everyone’s voice is heard. These bigger decisions can range from who to name as the new CEO, where official headquarters should be located, employee retention, financial decisions, and future acquisitions. It is important for the new executive team to understand respective roles and responsibilities and stay within their designated job functions. Change can be difficult (and sometimes uncomfortable), but trusting in colleagues to do the right thing is essential for the organization’s overall success.
Manage Employee and Customer Relationships
Managing employee and customer communications pre-, during, and post-M&A is critical. Employees want transparency into what the change means for their job security, responsibilities, and future prospects. Customers want to know they will still receive the same level of customer service and won’t experience any disruptions. To avoid mixed messages, there needs to be a primary point of contact for each. The leaders of the respective M&A companies need to share their decisions and, when possible, the reasons behind them. This will lead to trust of the new organization and cut down on speculation about business-level decisions.
When it comes to external communications, specifically managing customer and partner relationships, an open dialogue is best. Merged organizations should avoid leaving external parties feeling as though the company and employees they have worked with for years and have built a trusting relationship with have stepped aside or changed completely. It is vital that the new organization nurture those relationships and keep in regular communication.
A big part of managing both employee and customer relationships comes down to the rebranding of the overall company. Consider creating a new system for communication across the company that will allow everyone to feel a part of the new organization, and in the process generate an open dialogue for questions and concerns. Additionally, consider creating a new website for the merged organization, as that can make a big difference when it comes to inclusivity and ensuring everyone feels as though they are on the same journey.
Standardize Vendors, Technology, and Contracts
MSPs work with multiple vendors to run not only their own businesses, but clients’ business as well. Therefore, standardizing technology across the new organization is essential, but can also be extremely difficult.
Standardization involves selecting the vendors and technologies that will be used and offered moving forward. It also entails managing and consolidating the vendor relationships and contracts in place.
In selecting vendors, MSPs should work to align all vendor agreements, enabling a smoother consolidation and selection process. An important reminder for MSPs when choosing a vendor is to take as much time as needed to come to a sound decision. Consolidating technologies and vendors can be challenging from both a technical and relationship perspective. There are a lot of sound products out there, but it’s the relationships and partnerships that make the biggest impact.
When reviewing vendors, MSPs should ask:
- Can the vendor support the size and scale of the new organization’s needs?
- Is the vendor’s technology secure, and are we confident that it won’t be compromised and, more importantly, won’t compromise our clients’ information?
- Is it the best solution out there for us? Can we use it and sell it seamlessly?
- What support options are available?
- Do engineers have the ability to test any new software being rolled out?
While no two M&As are the same, all MSPs going down this path should remember the speed at which change happens. From creating a corporate department to establishing standard policies and procedures, it can take time for staff to trust the process. By working together, keeping an open dialogue, and managing expectations across internal and external departments, MSPs on the M&A path can overcome the obstacles that arise and successfully transition to the next chapter of their journey.
MIKE FOWLER is CEO of Iconic IT, launched in 2019 with the merger of four MSP companies: Capstone IT, Choose Networks, Live Consulting, and Networking Results. Fowler was the co-CEO of Capstone IT.
