As a long serving CFO, COO in the tech space, I’ve watched Mergers and Acquisitions (M&A) and industry consolidation with keen interest.
Over the years there are some commonality trends that often repeat themselves. We have all heard about, read about or personally experienced what happens when a software product is acquired by another company. All too often, the only people who benefit in the short term are the executives and the stakeholders. The people who use and pay for the acquired software (the Customers!) may find themselves in a challenging situation; especially if they fall into the small and mid-market business category.
There are a few key areas to pay attention to if you fall into this group:
1. Software Platform
Possible sun-setting or shutting down of your system with promises that “new system” will be better. This promise often does not materialize for your type of business unless you are using a vanilla, simple version of the product. Any special or unique configurations typically fall into the exception processing category. “Merger math” is a game of numbers and it is not usually realistic that your specific needs can be cost effectively accounted for during the transition. They know there will be churn – and if it happens, then so be it.
2. Support and Customer Loyalty
Possible support degradation. The wonderful support you may have received could take a nose dive. Companies often wake up to find they are a number and no longer a name. You may wait in a queue if you are lucky – and if your company is not considered important enough, you could be in that queue for a long time. Back to previous point (#1) on acceptable churn and client attrition.
3. Pricing Structure
Changes to your pricing structure. After your term is up you may be furnished with a “take it or leave it” price hike, which is often the case if you are not a large enough company to warrant special consideration. (Typically, only the top 10% are.)
4. Product Innovation
The innovation and special service you may have been accustomed to may come to a screeching halt. It is not a malicious exercise just a pragmatic one. The acquiring company often focuses on sorting out what they have bought and will look to reduce operating expenses by collapsing the key areas that are important to you as a client; such as one on one client support and innovation.
One of the prime considerations when evaluating what steps to take if a software product you use is acquired is to first look at your importance to the buyer. If you are a larger organization with a healthy revenue contribution you probably will be in good stead as you have some leverage. Should you be a smaller/midsize or family owned business you may expect to encounter some or all of the above.
If you are uncomfortable with what you uncover, find an established company that is being innovative and supporting their clients in the fashion you prefer. They should have an established client base and are committed to client loyalty and innovation; not solely focused on shareholder value. In this industry, I would suggest over 2,000 clients as a benchmark. The right selection will make the transition painless. The alternative is far worse.
Please call me directly if I can lend any insight into the Fleet Management GPS industry. I would be delighted to share my thoughts in an impartial and pragmatic fashion. Thank you.
Chief Financial Officer