Dealmakers are well aware of the challenges that come with post-merger integration. Different cultures, processes, and ways of operating can take a long time to overcome.
But one challenge, in particular, has executives concerned more than others—software integration. As M&A activity among software companies heats up, bridging gaps between systems stands to become a higher priority.
Sameer Dholakia, the partner at Bessemer Venture Partners, says that “M&A can often make sense on a product strategy whiteboard, but may not work in practice,” and that ignoring key differences can result in “a ‘Frankenstein-like’ bundle of tech tools, rather than a single, unified solution.”
It doesn’t have to be this way. By taking steps ahead of time, M&A executives can help technology leaders integrate new software into their companies’ existing products smoothly and efficiently.
Start with an IT due diligence assessment
Riveron, a business advisory firm, says that “Software implementation efforts are often one of the most complex and expensive areas when defining the scope for business integrations.”
Folding another company’s software into an existing product can be a monumental challenge, and it pays to start with thorough due diligence.
- Gather information about IT personnel and their responsibilities
How will those responsibilities change after the acquisition? Will staff from the acquired company be added to the team?
- Assess the acquirer’s IT hardware
Is the existing IT hardware sufficient for handling both the existing systems and the new systems being brought on?
- Review network security
Do network security protocols need to be adjusted to account for the new software?
- Check-in with the team
Do software engineers feel confident about being able to smoothly integrate the new software into the existing code base?
Put a data integration strategy in place
It’s impossible to plan for integrating every piece of data post-acquisition, but focusing on important systems such as the ERP is essential.
Every company labels and organizes their data a bit differently, so advising leaders to improve governance through tools like a data warehouse can ensure that everyone is speaking the same language. ERP systems are known for being difficult to translate between companies, so starting earlier with ERPs in particular is recommended.
Assigning standard data labels is just the first step. Once it’s been standardized, IT teams should model how the newly combined data will flow through enterprise applications. If the acquired company uses many of the same applications as the acquirer, this should be relatively straightforward. Leaders should budget more time for this process if the applications are significantly different.
Align on a unified product strategy
To avoid a “Frankenstein-like” product that will turn off consumers, leaders need to avoid thinking about the acquired software as simply an add-on. Instead, before the deal goes through, align on a unified product strategy that takes the existing and new systems into account.
One of the most high-profile software acquisitions in recent years was when Salesforce bought Slack for nearly $30 billion. On paper, it seemed like a fantastic deal—adding Slack’s communication capabilities to Salesforce’s platform would add significant value to customers.
Nearly three years later, according to the Wall Street Journal, “corporate technology buyers so far aren’t impressed.” It isn’t clear that Salesforce had a strategy for unifying Slack with its existing products, and most customers continue to use the two separately. Since the purchase, Slack’s revenue growth has declined.
To unlock the synergies that they see on paper, M&A executives should work with technology leaders to work out what the unified product offering will look like after the acquisition. Communicating this internally and to customers ensures that everyone understands how the acquisition will benefit the acquirer.
Don’t underestimate software integration challenges
After a long dormant period, software mergers are gaining steam again as lower valuations and weak IPO prospects push companies to look into being acquired.
On paper, synergies can be alluring. But before going through with a software acquisition, it pays to gain a solid understanding of the reality on the ground, how the product will change post-merger, and how the combined software will ultimately work.