Many sourcing experts have been through a provider merger or acquisition in their time in the industry. The concern that it will disrupt existing services or alter the nature of the engagement can make M&A announcements a troubling read. Recent HfS research has put us in contact with a large range of enterprise buyers and sourcing professionals who have tackled this very challenge, particularly in the IT Services space. And while some where left unscathed, many had little positive to say about the experience.
Our exposure to such a wide range of experiences provided ample opportunity to dig into how some professionals weathered the storm successfully, while others became marooned on an island of uncertainty, with some even reporting divergent experiences from the same acquisition activity. The following guide – which is based on the different buy-side approaches to acquisitions – will help you weather an acquisition with smooth sailing on the other end.
Communicate Your Expectations
From both the sell-side and buy-side we spotted a considerable mismatch in the understanding of expectations during a period of change. Often, as a new leadership team comes in or account managers take over engagements, there is a lack of clear communication, particularly as the ground level sell-side staff are unsure how delivery will be impacted, and the buy-side are looking for stability and consistency. And in some cases, that expectation of stability and consistency gets in the way of open communication – why do we need to reiterate what’s already been cemented in existing negotiations?
This is by far the most significant difference between those who weathered the storm and those who did not. Professionals who had an easier ride did one simple thing – communicated their expectations at every opportunity. They made sure that all parties understood the direction in which the engagement was currently going, the requirements of its success, any ongoing issues awaiting resolution and any other essential information for the continued success of the engagement.
As one of our sourcing professionals advised, "I was very clear that my expectations would not change – as long as they continue to deliver, there are no major barriers to us continuing to work together.”
Build Internal Knowledge Hubs
Acquisition activity rarely happens overnight – there is often a drawn-out process where the details are finalised. Some of our sourcing experts used this opportunity to develop or enhance knowledge capture and storage internally to mitigate the impact of sell-side professionals being displaced. One sourcing expert noted the considerable impact this can have on their engagements advising that "If our account manager disappeared as well, we would be working with a completely different team.”
Should this same experience be replicated for your engagements, a knowledge hub that supports getting professionals on the provider side up to speed on how you view the engagements will be undeniably helpful. In an ideal world, providers will have this all in hand and any change will be handled smoothly, but there are plenty of war stories that tell us this isn’t the case. So, it is better to put this in order as a helpful insurance policy should things look a little unstable.
Find the Value
Speak to your provider contacts to get the inside scoop on what extra value you can expect as a result of any activity, whether that’s a reduction in price, access to IP, talent or value-add service, or an overhaul of the existing engagement in favour of the business. Often M&A activity is the result of a well thought out process that brings value to clients. For example, it may be that through the absorption of boutique firms, clients will get a better deal on licensing as the larger firm carries more heft with Independent Software Vendors (ISVs). Or it may be forming a larger practice that will offer unrivalled access to talent. Whatever the angle, make sure you know about it and are prepared to leverage it in a way that drives more value out of the engagement.
Bring in Experience from Your Peer Group
Sourcing professionals have access to a vibrant and diverse community from which to draw candid insight and advice. Many of the learnings we’re providing here come from experienced sourcing professionals who have weathered many M&A storms. If it looks like your engagements are likely to be affected, reach out to the sourcing community and get advice from peers who have been through the same process. There are bound to be plenty of battle-scarred veterans who are prepared to dish out their insights…and there are likely to be plenty more joining the ranks as more providers look to shore up their capabilities and resources through acquisition.
Bottom Line: M&A doesn’t need to spell out disaster if approached in the right way it could provide a tremendous opportunity to your business
As a final thought, it is becoming increasingly likely that existing engagements will be impacted by some form of M&A activity in the future – whether that’s the positive addition of additional talent to a deal with a large IT services provider or the upheaval of a partnership with a soon-to-be-acquired boutique. However, if the right approach is taken on the buy-side, it can shift from disaster to risk mitigation and even to increased value. It’s all in the approach and if sourcing professionals hold their ground they can easily weather the storm.