Are Acquisitions Good for Customers?

As I've been focused around understanding and projecting market dynamics relative to "Big is the New Small," I haven't really taken much time to think about whether all of these acquisitions are good for customers. At first glance, the idealistic theory says absolutely. Customers get broader solutions from company's they trust that have the heft to continue investing in the product line. That's all good, right?

Unfortunately, the truth is usually much different - usually because of the economics of the situation. The principals and key employees of the acquired company just became very wealthy (if the deal was favorable, that is), so how much fire is left? Will they even stay around? If so, for how long? Those are all legitimate concerns because ultimately if you invest in a company's product, you are investing the people. And usually the people of an acquired company go away.

What about the product? Well aside from the people side of the equation, this depends. Some deals are very complimentary, so the acquired product fits right into the product line, the sales force gets it, and momentum accelerates. This is maybe 1 in 10 deals. What usually happens is the key engineers of the acquired company leave, or even worse - they vest in peace. So innovation stops and the product stagnates for 6 months to a year until the acquired company figures out what they should do with it. In this business a lot of things change in 6 months.

The stability thing is usually a positive and can be used very effectively by a vendor to take a common objection off the table. The easiest thing in competing against a very small start-up is to play the viability card. People are less sensitive to that than 3 years ago (when the memories of the bubble were front and center), but it still can create problems for the small fry. So if your key supplier is acquired, at least you'll take some solace in the fact that their balance sheet is more solid.

When I was on the vendor side we always had mixed feelings when a big competitor got taken out, but usually it was a happy day. First, it validated your valuation. Second, it legitimized your market. Big companies tend not to buy stuff in unimportant markets. Most importantly, there was a very good chance the acquirer would bungle the integration - so we had an extra 6-12 months of runway to attack the market. Of course, the first couple of days are frantic, as you spin like hell to look like the winner in the situation. But once things settle down, the acquired company usually takes a pretty significant competitiveness hit.

So, end users out there - what do you do when a key vendor is acquired? At first, nothing -  it's business as usual. But I suggest calling a meeting with the new company a week or two after the deal closes and you need to ask 3 questions.

1. How does my product (the one you bought) fit into your strategy? - This gets at the vision thing. Make them explain the underlying rationale for the acquisition and what the combined product lines will look like. If they can't communicate that effectively, start to worry.
   
   
2. How is my account team changing? - Obviously there will be changes in both how you interact with the vendor from the sales side, as well as the support side. Understand these changes and make plans accordingly. Your start-up sales person will most likely be gone, so get a feel whether you like the new one.
   
   
3. What is the 18 month product roadmap? - Here you need to really understand what they are going to be building and how that has changed as a result of the acquisition. If it hasn't changed - that's bad. Why do the deal anyway? If it has changed, you need to understand why and make an assessment as to whether the changes make sense FOR YOU.

What about timing on this meeting? I mentioned doing it within a couple weeks of the deal closing and I think that's important. You will be able to tell VERY quickly whether they have their act together. The messages will be crisp. The decisions will have been made. It doesn't take long, but it does take focus. If the strategy is not laid out and ready to communicate to customers within a week of the deal closing, the likelihood of success has just dropped significantly. Very significantly.

Another reason to not wait for the meeting is to figure out whether you need to start looking at Plan B. If the answers are bad or not favorable to your situation anyway - you need to start looking at alternatives. But you don't know that until you meet with the vendor, now do you?

So overall, in my experience acquisitions are usually bad for customers. But customers can be proactive in figuring out how bad (or good) the deal will be and making the appropriate contingency plans.