One sign the economy is improving is that more mergers are happening as companies free up cash to invest in other businesses. Having seen a few of these firsthand, I offer 10 suggestions on how things can go wrong, and what IT managers and CIOs should look out for.
1. Ignore employee contracts. On announcement day, you should have a plan in place that addresses who stays and who goes, and plan on honoring longer-term contracts, even paying bonuses when called for. The good people -- especially your key developers and technical staff -- aren't going to watch what happens to their contracts. Mess with this, and they won't stick around a minute more than they have to. [2. Speaking of which, give everyone meager bonuses upon the merger announcement. Some people are getting big payouts, but try to fair with those who aren't owners.] 3. Overpromise when changes will be implemented. If everything is going to happen "within 90 days" after the acquisition, make it so. Like never-ending software projects, this could turn into a moving time window, with changes never being implemented. Figure out what you can do within two weeks' time, and focus on these short-term objectives. 4. Have no clear chain of command in the new regime. Who approves travel requests? Who do you call when someone's invoice doesn't get paid? What are the new regulations for cellphone reimbursement? Who approves new hosting contracts or software purchases? This nitty-gritty stuff can be easy or hard, depending on the marriage of corporate cultures and policies. Pay attention to this stuff before the announcement. 5. Take your sweet time to define new roles. The longer you delay this, the quicker people will start leaving out of frustration over the ambiguity. This is especially the case for IT departments that have overlapping responsibilities. Defining new roles should be part of the acquisition plan.6. Treat your developers like commodities. Regardless of whether you want to keep them or not, you will need them to help with the transition to whatever systems the new overlords have in place. A bad sign is when developers leave soon after the merger, showing they don't have much confidence in the combined company. 7. Pay your contractors slowly. If you don't have procedures in place to absorb new contractors and get them paid, they will find other clients quickly. Figure out how many independent contractors are on board in the acquired company and make them happy by getting your HR systems in place to pay them as quickly as possible under the new regime. 8. Keep the announcement a secret from the staff. I've seen mergers where the first anyone hears about it is in the press. That isn't a good strategy. Your staff knows that something is up, so trust them to keep it quiet. By not doing so, you set the wrong tone for what should be a very exciting day. At least let your managers know what's going on ahead of time. 9. Insist that everyone immediately relocate to the new HQ. Come on, this is 2012! Accept that people will want to work from wherever they currently live, and invest in hiring managers who are comfortable with supervising remote workers. Make sure you have the technology in place to encourage distributed work teams, too. Let the moving evolve slowly, as individuals need to find their new niche in an organization.
One of my favorite positions was long ago at PC Week (now called eWeek). I started out working remotely for them -- me in Los Angeles, and they in Boston. Over time, I got promoted, and it became obvious that I needed to be on the Mother Ship. But it was a joint decision, not something dictated by HR. When you let things evolve, it goes a long way towards improving morale and keeping the key people on your team.
10. Spend lots on window dressing. One firm I knew spent lots of money on a new domain name, leaving little in the budget for other, more substantial items. A domain name isn't any good without the associated content and the people who contribute value.
These are by no means the only 10 mistakes that I have seen over the years. What were your favorite merger blunders?
– David Strom is a world-known expert on networking and communications technologies. He has worked extensively in the IT end-user computing industry, and has managed editorial operations for trade publications in the network computing, electronics components, computer enthusiast, reseller channel, and security markets.
Thanks for your list of 10 dos's and don'ts, David. I'd also add that it's important to address rumors before they get totally out of control. Having lived through several M&As, too, I recall some of the wilder stories that spread, inclluding some that were actually quite accurate as it turned out! It's important for CIOs to get ahead of some of the wilder speculation, though, before the best people jump ship, preferring to move to sounder ground vs. sticking around in case the worst-case scenarios actually happen.
To paraphrase the great CBS New York newsman Don Hollenbeck, I wish to associate myself with everything my friend and colleague David Strom just said.
Let's see, my favorite merger blunder? It goes back a little ways, and involves a very large company that purchased an extremely popular producer, then subsequently gutted its staff... at the same time a rival producer was starting up. So, Way to Screw Up Your Merger #11: Lay off most or all of your acquired employees while your competitor (who, incidentally, was accruing funds to make the very same acquisition you made) has the resources, desire, and cash to hire them all and squeeze the lifeblood out of your new endeavor.
Moral of the story: Never acquire anything you're not ready and willing to own.
While Google hasn't bought anyone significantly lately, there have been a number of M&As of note, like VMware and Nicira, or a number of Cisco and IBM acquisitions over the summer and fall. And let's not forget Instagram and Yammer -- billion dollar deals. So while we haven't seen the go-go days of the dot-com boom, there is a lot happening.
I've been noticing a proliferation of social and mobile companies lately..ones that I would think would be gobbled up normally or not even be taken public.
I actually am glad if this happens (no merger) since I like to buy stocks in the sub-$10 range but half the time it seems like some Elephant comes into the room and kicks down the price and then buys it up before any small investor gets a chance to realize success (or failure, but that's part of the game).
These days, employees, rather than factories and other capital assets, are the major assets of most companies. Alienating employees is a sure way to turn an acquisition into a paper victory at best.
Scott - I love this. Since employes are the major assets of most companies, the competitor was able to effectively steal the acquisition right out from under the company that did it.
Now that's a good item to add to an already sarcastically-good and comprehensive list. Definitely the top 11 things people should make sure they don't do for their next mergers.
Another issue I've seen is the whole area of intellectual property post-M&A, where upper-level execs leave (by choice or not), having signed some kind of non-compete, but end up at another company and have some similar or cross-over responsibilities. The prior company then sues the exec for IP or non-compete breach. What can organizations and employees do to protect themselves in these cases? Obviously, as an ex-employee, you don't want to tie yourself up in a lawsuit but you also need/want to make a good living, which means using all the skills and contacts you've built up over the years.
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