Six Rules for M&A Success

2006 saw a number of well publicized mergers that provided a better idea of what the OSS/BSS market would look like. IBM bought Vallent; Amdocs closed its acquisition of Cramer; Oracle purchased Portal Software and MetaSolv; CSG Systems acquired Telution and Subex-Azure acquired Syndesis. FTS has been involved in consolidation in the billing marketplace, having purchased Viziqor (previously Daleen and Protek) in December of 2005, among other ongoing acquisitions. It was a struggling company, but had excellent products. Within a year FTS turned Viziqor around into a profitable division. One of the most important success factors for us was focusing on keeping both the customers and employees informed and happy throughout. We also learned many other tips along the way to make the process smoother for any acquirer. Here are six rules to follow that can help make things easier.

1. Make a smart mix. Bring in new executive management, but retain existing executives who are excellent. Retain manager and supervisory-level employees, because they have the real knowledge and loyalty to products and customers.

2. Communicate brutally. Ensure regular, open and brutally honest communication with employees in order to keep them informed about and involved with developments and to build a level of trust from the start.

3. Respect their culture. Ensure that the culture of merging companies fits and that all parties sign up to common values and objectives.

4. Preserve the know-how. Analyze your product development situation promptly, and decide on your local R&D. After an acquisition there is typically a rush to merge R&D organizations, but keeping local R&D can ensure that customer needs and product know-how are preserved.

5. Embrace your values. Do not hesitate to realign the organization around new values—even if it means modifying org charts. If the new values you bring call for increased support, it is OK to move staff to the support department.

6. Watch the books. It is critical to ensure that accounting is managed rigorously. Mergers create many rapid changes. Without constant contact with the financials, the business can take an unexpected turn. Further, because so many decisions depend on financial information, make sure to receive comprehensive, meaningful and timely business financial reporting—or else ask for it to be built for your business. Do not assume that the existing reports will be satisfactory.

Minding the People Involved

Viziqor was a business struggling to grow, but FTS saw potential in Viziqor’s platform and was impressed with its RevChain product, its knowledgeable employees and its loyal group of customers. Following the acquisition in December 2005, FTS knew it was important for the new management to act quickly and convince customers that they had long-term plans. Many of the customers had remained loyal to the products, despite having experienced a number of organizational changes over just a few years. They needed to know that customer service was FTS’ first priority. The new management team embarked on a tour to meet with all of the customers and explain the roadmap for the future.

Another critical group of people to consider is the workforce. It is crucial for the new business owner to create a pact with employees of acquired entities; to keep employees informed about developments; and to build up a level of trust. If the core management of an acquired company moves on, it is likely that both the existing business and customers will suffer as a result.

FTS had to prove its commitment to Viziqor’s existing employees. Many of them were fiercely loyal to the products and to the company. They were vital to the plan to turn things around. They had the critical knowledge and experience with both the products and the customers. It was important for us to retain and motivate those people who wanted to stay and to share our plans for improving the company.

Regular, open dialogue was very important to keeping all people informed, involved and motivated to work hard to make the necessary changes. FTS also implemented a bonus program, tied to profit, to create a sense of cooperation and knowledge that rewards would follow based on business performance. The thinking goes that if everyone can be motivated to work in the same direction, then all other objectives, such as merging company cultures and managing tight budgets, are easier to achieve.