When Acquiring a Company, Don't Forget About the People
The technology and talent acquired -- especially in high tech -- are the most valuable assets secured from an integration.
Merging teams, products and processes is one of the most challenging efforts a company can undertake. Yet, M&A is big business. And with a failure rate of at least 50 percent, one has to wonder: If the impact of an acquisition can be so monumental, why are so many of these deals proving more troublesome than they're literally worth?
Despite their best efforts, many of those deals fall apart due to poor planning or a lack of understanding and care during the execution phase. Oftentimes the people structuring the deals look at the economics (an attractive, long-term client base) or the products (complementary solutions that would be more impactful together). Typically they're not looking at the people who will actually have to make the disparate products and teams (and their existing ways of operating) work together, quickly enough to be advantageous to the bottom line.
In many cases it comes down to motivation -- why buy? This isn't to be confused with the age-old question of "build or buy?" Many times I see acquisitions like Slack's deal with Atlassian, in which Slack acquired HipChat and Stride to remove competition and thereby grow their own customer base. The question wasn't, "Should we integrate a feature it would take us a year to build ourselves?" The motivation was market leadership. Those acquisitions are easier to deal with in many ways: Shutter a business while migrating clients onto a similar (hopefully better) solution. Oftentimes you can back into some of the deal terms by watching how long key executives stay on at their new parent (did they actually love the business, or stay until the day the earn-out ended?).
In other cases, acquisitions are truly about obtaining individuals' skills and the technology for the long term, encouraging business growth by transforming it into one that's even better and continues to have the bench required to innovate over time.
The technology and talent acquired -- especially in high tech -- are the most valuable assets secured from an integration. That's not to say this school of thought doesn't apply to software deals, but the challenges are different. For example, computer engineers and software developers typically have a broader skill set that offers more flexibility to transfer their skills into new businesses. But, for people who are trained in a more specialized industry like Membrane Electrode Assembly (MEA) technology -- full disclosure, I run a hydrogen fuel cell (HFC) technology company -- their skill set and experience is so specific that their value is high in one particular arena, but it's much harder to transfer.
Having just recently completed the acquisition of American Fuel Cell, a premier developer of MEA technology, I've been reminded of some key ways high tech acquisitions can pay off. And although we're only a couple of months into that integration cycle, it's already showing signs of success with the launch of our first product born from both our teams' ingenuity. With decades of experience leading acquisitions, I've learned that it's essential to keep the technology and talent at the forefront of all decisions.
Use what you buy.
When considering an acquisition, be surgical about it, pay attention to the minutia and think strategically about the impact each component will have on the future of your business. Will acquiring a vertical company that integrates easily with your business enable the organization to grow and expand most effectively? The goal should be to maximize what you've paid for -- technology, data, people. From the start, identify those features that made the business attractive in the first place and incorporate every one of them into your integration plan. If something's getting left behind, take the time to understand why -- don't let it go to waste. It takes a lot of work to pull these off well.
Each team member brought on through an acquisition, from sales to engineering to marketing, brings with them a level of expertise, whether that's through a deep understanding of the customer relationships, the technology or knowing the best way to target prospects. Merging that institutional knowledge into your existing teams is arguably more essential than the technical integrations; it ensures defenses remain low and collaboration remains high (greater productivity and creativity).
In my experience, the ability to start the integration and design process almost immediately empowered our business to start production and deploy new product offerings within the same year as the acquisition -- a testament to the people collaborating and figuring out how to make the tech work -- together. Furthermore, diversity among teams fosters an environment that inspires unique products. When we acquired ReliOn, an HFC company focused on the backup power market, we were able to bring new technical experience in-house, which helped us expand into other industries such as railway and utility telecom.
Set hard, yet achievable goals.
Goal setting is proven to have a positive impact; according to McKinsey, 91 percent of companies that have effective performance management systems say that employee goals are linked to business priorities. Goals have the power to encourage and motivate people, whether they're employees, investors or the board of directors. Give your team challenging, yet achievable targets to help push them in the right direction and encourage them to continue performing even when they're dealing with new people and initially unfamiliar technologies or processes.
Motivate and inspire new team members.
It can be challenging for employees who transition to a new business via an acquisition, often leaving them feeling like the new kid transferring into high school. While some elements might be similar, there is a lot of change as well, which can make it easy to lose motivation. It's essential to the success of an acquisition, really the business as a whole, to keep these employees happy. Research from 5 Dynamics says that happy employees are 20 percent more productive than unhappy employees. There are many ways to drive motivation, including team activities and goal setting. Find a mixture that works for your business and employees -- old and new -- and dedicate time to ensuring they feel fulfilled.
Acquisitions are hard. One thing is certain: The people of the acquired organization have spent time and energy building and growing something they believe in and the technology they've created ignited something great that captured your interest. Understand that value, encourage that passion and build something even stronger together.
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