M&A Best Practices: A View From The Trenches3:00 PM EST Fri. Jun. 14, 2013
In a competitive environment that often comes down to the decision about whether to build, buy or partner, many companies are actively considering such possibilities. As part of our special coverage on M&A in the channel, CRN has distilled some of the advice offered by channel partners who have traveled this road, sometimes repeatedly. Read on to find out about M&A best practices in the channel.
Check out the rest of CRN's special report on M&A in the channel, available exclusively on the CRN Tech News App.
Even among companies that do mergers and acquisitions on a semi-regular basis, the process never seems to conclude without some unexpected development.
"There was a big surprise in just about every deal we had done," said Arlin Sorensen, who last year sold his Iowa-based channel company, Heartland Technology Solutions, and had been on the purchaser's end of seven previous deals. "In almost every case, we found that there was something that was not exactly right. Sometimes it was an accounting issue or something that involved promises to employees, and then we would have to decide whether or not to continue with the deal."
"A lot of the discovery happens right at the wire when you're finally getting access to the last pieces of information," he added. "I don't care how good your discovery is, there is always a surprise and you can never predict where it's going to come from."
It may be tempting to hunker down and share as little information about potential M&As. In the very beginning, this might be necessary, but as the process progresses, there will come a time when the sharing of information with employees, partners and eventually even customers, becomes a practical necessity.
"As long as people know what to expect, even if they are impacted negatively, that is a better situation than leaving it open," said Rick Hamada (pictured), CEO of Avnet, which has acquired more than 85 companies in the last 20 years. "Uncertainty or lack of information is the worst-case scenario. If you don't give them a version of what's going to happen, they will come up with their own, which will often be more drastic than what you're actually contemplating."
Any move to extend a company's strategy, whether it be technological or geographical, needs to take into account the ongoing move toward managed services, cloud computing and other service-related business models.
"A lot is changing very rapidly as it all goes to virtualization and cloud," said Ben Eazzetta, president of Ares Security and a consultant on roughly 20 M&As. "So if the company is not acquiring the right assets in the midst of the transition, you can quickly get yourself in trouble. You must navigate this trend properly, or five to seven years from now people might not be buying what you're selling."
Once you complete an acquisition, everything will be right with the world, won't it?
Not necessarily. Ares Security's Eazzetta said many companies expect too much too soon, which can lead to a variety of both business and interpersonal issues that might not even match the true potential of the deal.
"If you expect an immediate expansion of revenue or an immediate reduction of expenses or extension of customer base, you may end up disappointed because things rarely happen that quickly," he said. "Be conservative in your expectations, or else you can wake up one day and find yourself with an alienated team, lowered efficiency and the absence of the synergies that you were hoping to see."
Seeking the right M&A fit is, in many respects, a specialized project that spans technical, financial, market and even human resource components. Therefore, companies that pursue that path often assemble their own internal "tiger teams," made up of individuals who can represent these components.
"We have a small team that is involved in the ongoing search for the right companies," said Jay Kirby, vice president of networking at Lumenate, a Dallas-based channel partner. "We look at a lot of companies that initially appear to be a good fit. Maybe 90 percent of those get eliminated for one reason or another. It takes 10 or 12 [prospects] to maybe get one company that we will seriously pursue. Then we have a secondary team that looks at the opportunity more broadly once they've crossed the first threshold."