Don’t Forget the Big 4 Questions to Ask During Any Mega-Acquisition

Four years ago, during the last big M&A frenzy, I published a post on my Sourcing Innovation blog on The First 4 Questions to Ask During Any Mega-Acquisition that is still just as relevant today as it was then.

And while it was very direct and maybe even a bit confrontational, sometimes it’s a good idea to be direct because sometimes you need to let the new vendor know you’re not in the mood for any shenanigans, and if the new vendor bought your former vendor for the sole purpose of playing such shenanigans with you, you’re ready to walk (and execute that change of control agreement in your contract tomorrow).

The reality is that while some mergers and acquisitions are with the intent of creating a better combined company that can better serve the respective customer bases, not all mergers and acquisitions are done for this reason. Some are done just to eliminate competition, and others are arranged by investors for the sole purpose of a short-term money grab (which will be accomplished by a short-term PE sale or initial public offering once the balance sheets are puffed up and the overhead reduced).

So, without further ado, what are the four questions you should ask to find out whether you and your new vendor are on the same page?

1. How will you screw us over on price?

Every acquisition brings with it the promise of economy of scale and lower price, but it typically takes years to understand and take advantage of platform overlap, redefine combined team responsibilities and organizational boundaries, and identify the most profitable staff re-assignments. And since, in the interim, change management experts, process consultants and other resources need to be brought on board, overhead goes up and costs go up accordingly. And if the purpose of the acquisition was to show a short-term return, this cost will likely get passed on to you at renewal time.

Alternatively, the mega-vendor bought your vendor just to retire its solution and migrate your vendor’s client base to its more expensive solution. Even if the solution is superior, it’s not necessarily superior for your organization, and you don’t necessarily want it or the higher price tag.

Furthermore, you often won't know which scenario you're dealing with until you ask point blank.

2. How will we get screwed over on quality of service?

The biggest fish in the combined company gets the best resources. And even if your current organization was a big fish in the old company, that does not mean your company will be a big fish in the merged company. Your company might just be a medium-size fish that gets the “B” Team, if it is lucky.

The fact of the matter is your current support team could be re-assigned or let go, the new team might not know anything about your solution, and without the current team, the vendor may not be capable of meeting the service levels promised to you in your contract. During the discussions, make sure to point out the service levels that the new vendor is committed to so both parties can be on the same page about expectations from day one.

3. How will we get screwed out of innovation?

As per my previous writings over on Sourcing Innovation, it's important to find out whether the merged company will continue to develop the platform your company is dependent on. You don't want to end up in the scenario where you will remain locked in to a multi-year deal as the technology platform you bought withers and dies (because you didn't execute that change of control clause quickly enough or got caught by an automatic renewal).

If the new company is not going to support your current platform for the duration of your contract (unless, of course, you want to move to the new platform they are offering), make sure that the new vendor is thoroughly aware of the “full data export in standardized format” clause you included in the contract (and that you expect it to be honored when the time comes) and that you expect full integration support so you can augment what you have where your platform is lacking.

4. What new and interesting ways will we get screwed in the future?

What additional layers of complexity and confusion will the new, combined legal team try to weasel into the contract renewal and how will that bite your organization in its backside down the road?

Longer contractual terms? Non-disparagement clauses? No ability to discuss platform shortcomings when trying to find a best-of-breed solution to plug the holes. No ability to buy a non-vendor module when the vendor has one. And so on.

Not every mega-vendor is out to screw you, but make sure from day one that they’re not and that they know you will not let them. For the relationship to work, regardless of their intentions, you both have to be on the same page.

And yes, this is confrontational. But sometimes you have to stand up for yourself! (Even if the new vendor has the best of intentions, you don't want to be the customer who gets lost in the shuffle. When big mergers happen, every day there's shuffling.)

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Voices (2)

  1. Jason Busch:

    Mega vendors and roll ups all too often seem to think it adds to their, well appeal, vs. the opposite (which can also be the case). As LMAFO also proclaimed: “I’m sexy and I know it.” But the question is: do those who count agree?

    Michael, your pop music culture knowledge and Wierd-Al lyrics always make me smile!

  2. Peter Smith:

    Brilliant article Michael. Spot on. We need to remember the basic principles of capitalism – mergers and acquisitions aren’t done for the benefit of customers- full stop. And well done for linking to a YouTube video with 1.6 BILLION views!

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