Managing Acquisitions: Balancing Financials and Soft Skills

The Complexities of Company Acquisitions

Organizations pursue acquisitions for a variety of strategic objectives. These motivations can range from addressing gaps in their existing product road map to increasing their overall market share, or even simply acquiring skilled personnel.

Identifying and Integrating Acquired Companies

Successfully identifying a suitable company for acquisition requires considerable expertise. However, the true challenge begins after the deal is finalized. Integrating the acquired entity into the parent company demands finesse and careful planning to avoid losing valuable employees or fostering a sense of disillusionment among the acquired team.

A key decision involves determining the extent of cultural integration. Should the acquiring company attempt to assimilate the acquired company’s culture, or should the latter be allowed to retain its unique identity? Navigating this aspect is often critical to the overall success of the acquisition.

Practical Considerations Beyond Culture

Beyond cultural alignment and personnel management, numerous practical considerations come into play during an acquisition. Decisions must be made regarding the continuation of existing benefits and compensation packages, or a transition to new plans. Such changes can be disruptive to employees.

Furthermore, each company typically utilizes its own set of tools across departments like sales, marketing, HR, and finance. The acquiring and acquired organizations must collaboratively determine which tools to retain and which to phase out, avoiding a dictatorial approach.

The Importance of a Collaborative Approach

A delicate balance must be struck. Prioritizing the acquired company’s sense of inclusion, rather than treating it as a mere add-on, will inevitably increase the complexity of the integration process.

A Two-Part Series on Successful Acquisitions

To gain insights into these challenges, we are presenting a two-part series examining successful acquisition strategies. This first installment features perspectives from executives at three companies with extensive acquisition experience, detailing their approaches to post-deal integration.

The second part will showcase viewpoints from executives at three companies that were themselves acquired by the same organizations.

Understanding the Acquisition Landscape

It’s important to acknowledge that all participants are presenting their experiences in a positive light, and sensitive issues are unlikely to be openly discussed. The aim of this series is to provide a comprehensive understanding of the acquisition process from both sides, and to highlight the inherent challenges that arise even after agreements are signed and funds are transferred.

Identifying Suitable Companies for Acquisition

Determining the right company to acquire doesn't follow a rigid formula. However, executives with acquisition experience consistently emphasize a developed process refined through practical application.

Ashley Andersen Zantop, Cambium Learning Group’s COO, has overseen numerous acquisitions during her tenure. She explains that Cambium strategically pursues acquisitions to enhance its organic growth. Initially, they prioritize digital education technology companies focused on the K-12 sector.

Following this initial screening, standard financial metrics are evaluated, including revenue streams, market penetration, and profitability.

“Naturally, we assess the conventional factors considered during an acquisition,” she stated. “We analyze the core problem the business addresses, its target audience, and its unique value proposition within the education landscape. This assessment guides us in deciding whether the company should integrate with an existing Cambium business or operate independently.”

Oscar Werner, CEO of Sinch, a leading customer engagement platform, emphasizes a holistic view of potential targets. He considers the team integral to the success of any deal, often prioritizing personnel over the product itself.

“We frequently decline opportunities based on the team’s composition. Our experience allows us to identify mismatches, leading to a ‘no’ decision. The human element is as crucial as the technology and the product. We must be confident in our ability to collaborate effectively and enjoy the working relationship – this is a vital component of our due diligence process,” he explained.

Heather Hartford, Chief People Officer at Acquia, notes that Acquia’s acquisition by Vista Equity Partners in September 2019 has enabled strategic growth through additional acquisitions. Vista typically supports its portfolio companies with financial resources, and Acquia has leveraged this to expand its platform.

Hartford highlights that each acquisition is evaluated based on its potential to enhance the customer experience, aligning with Acquia’s core mission.

“Our focus is consistently on the digital experience. Therefore, any potential acquisition must demonstrably improve our products’ performance for customers or address existing gaps in our offerings,” she said.

“In a recent instance, we initially considered acquiring a vendor we were outsourcing a product from. However, a closer examination of their culture, personnel, and programs prompted us to reassess. We ultimately decided to acquire their competitor instead,” Hartford added.

Key Considerations in Company Acquisition

Strategic Alignment

• Focus on companies that complement existing organic growth.
• Prioritize businesses addressing specific market needs.
• Evaluate whether a company should integrate or remain independent.

Financial Metrics

• Assess revenue, market reach, and profitability.
• Analyze the business’s value proposition.

The Importance of People

• Prioritize teams with strong collaborative potential.
• Ensure a positive working relationship.

Customer Experience

• Acquire companies that enhance product performance.
• Address gaps in existing offerings.

Due diligence extends beyond financial analysis to encompass cultural compatibility and team dynamics.

Establishing Effective Communication Post-Acquisition

Following the completion of an acquisition, the focus shifts to integrating the newly acquired company. This process extends beyond simply merging operations and products; it centers on the individuals who dedicated their efforts to building the business, and who are now facing a period of ambiguity and potential concern.

According to Zantop of Cambium, achieving effective communication during this phase is exceptionally challenging. “The importance of communication is often underestimated, and frequently insufficient attention is given to it throughout the entire process.”

Cambium’s acquisition strategy is rooted in a genuine appreciation for the value the target company contributes. The intention is to foster a mutually beneficial outcome, extending beyond the financial transaction itself.

“Our approach begins with recognizing a shared objective – assisting our stakeholders in addressing a specific challenge. We have cultivated distinct cultures centered around resolving these issues.”

When onboarding new teams, Cambium assesses the acquired business to determine which aspects require integration and which should be maintained and supported.

Werner of Sinch highlighted the advantage of having a dedicated integration team of over 100 professionals. This team utilizes established procedures, including checklists and playbooks, to incorporate acquired companies. However, he emphasized that a rigid adherence to process is insufficient.

“While we have standardized procedures for communication, such as email schedules and templates, it’s crucial to prioritize the human element – welcoming individuals into our organization.”

He further explained that conveying the organization’s core values to the acquired company is paramount. Successfully integrating cultures requires more than just following a prescribed plan; it demands empathy and a focus on people.

Integration Following Acquisition

When one company acquires another, a crucial step involves determining how the acquired product will be integrated into the existing platform. Simultaneously, decisions must be made regarding the roles of employees from the acquired entity.

Practical considerations are also paramount during an acquisition. These include harmonizing systems for payroll, sales, and marketing, alongside all other operational tools utilized by both organizations. The handling of these elements significantly impacts employee retention.

Standardization vs. Unique Solutions

Zantop explained that their approach involves collaboration with the acquired company. If a compelling rationale exists for maintaining a specific tool, they are often willing to accommodate it. However, standardization across the board is generally preferred for efficiency.

“It’s important to first understand the reasoning behind any differing practices or tool choices,” Zantop stated. “Sometimes the answer is straightforward – a commitment to a platform like Salesforce dictates a unified approach. But other times, a unique customer problem may necessitate a different tool or methodology. We must be receptive to these nuances and incorporate them when feasible.”

Learning and Consensus

Hartford emphasized the value of mutual learning between the two companies. Ultimately, a consensus must be reached, as operating multiple parallel systems – such as payroll – is unsustainable.

She advocates for engaging key personnel from the acquired company early on, fostering enthusiasm, and empowering them to champion the integration process. “These individuals become powerful advocates for the changes being implemented,” she noted.

“Successful integration requires dedication, not only financially, but also in building trust and strong relationships. Leveraging these internal champions is vital for bringing the team on board, and being prepared to make necessary compromises is essential.”

Motivating Key Personnel

Werner concurred, highlighting the importance of demonstrating to employees that remaining with the combined organization is beneficial. “While synergies are desirable, retaining and motivating key personnel is the most critical factor,” he said. “Addressing this concern effectively allows time to resolve other challenges.”

Key Drivers of Success

Acquiring a company and successfully integrating its strengths into a larger entity is a complex undertaking. Numerous deals have failed to deliver anticipated results. However, these executives identify communication, mutual respect, and humility as key success factors.

Approaching a merger with a spirit of goodwill significantly increases the likelihood of a positive outcome, although success isn’t always guaranteed.

Further insights will be provided in part 2, featuring perspectives from executives at companies that have been acquired.