Congratulations! Your PE back company has just made its first acquisition. Now assuming the purpose of the transaction wasn’t just for the technology, what do you do next?
This post comes from being on both sides of these transactions and, worse, joining companies after they had been on an acquisition spree, and the resulting roll-up was a marketing mess. Unwinding these marketing messes is not a lot of fun. Better to not to get into one of these messes in the first place.
Here is a high-level list of the post-acquisition gotchas. Whether you are acquired or are the acquiring company, items in this list apply to you. The assumption is that both parties want to continue to drive revenue from both new logos and the installed base of both companies.
#1 – You Don’t Know Each Other That Well – Go Slowly
Despite the pre-acquisition due diligence, you don’t know the other party in the transaction well. While financials, SaaS metrics, compensation, org structure, sales pipeline, and budgets are known for the acquired company, neither side knows in detail how the other side works to drive revenue.
Beyond simple cost reductions in overlapping areas like HR, IT, Legal, etc., quickly cutting headcount, budgets, and programs can have unintended consequences. Likewise, expecting immediate increases in revenue production are also likely unrealistic. If you can delay even a quarter before making decisions impacting sales and marketing, your knowledge of how both companies can work better together will be significantly higher.
#2 – Let the Acquired Company Go “Shopping” for Resources, Programs, and Teams at the Parent
A larger company may generally have access to things the more diminutive, acquired company does not have, such as:
- A large installed base of customers
- Trade show presence
- Partner and channel organization
- A large sales team
- A giant megaphone with influencers
- Robust and well-funded analyst programs
The list can be extensive.
The deal thesis assumed synergies. Now that the acquisition has closed, if incented correctly, the acquired company can shop inside the parent to determine what will drive more revenue. The question is what will be helpful to the acquired company and what wastes everyone’s time and effort.
For example, suppose the assumption was that the parent company could sell the acquired company’s products through all their sales channels, including partners. In that case, once the deal is closed, the acquired company’s sales teams will descend on the newly acquired company. Meetings, sales calls, more meetings, training – a long list of time sucks that might not drive revenue.
What if the strategy was wrong? What if the acquired company’s products only work through a specific channel with a particular team that, with focus, can be wildly successful?
The way to find out is to incent the acquiring company with big revenue goals and let them “go shopping” inside the parent for the people, channels, and programs that will work for them to drive more revenue. They will figure it out quickly and get the revenue growing faster than just descending on them with what you think the solution is.
#3- The People Who Built the Inefficient GTM Model Are Unlikely the Ones to Fix It
If cutting costs is part of the thesis for the acquisition, and cutting sales and marketing costs is specifically called out, unfortunately, the people who built the expensive model are probably not the ones to cut it back. An example is PE carve-outs or take privates with wild overspending vs. their peers.
If the go-to-market model doesn’t work efficiently, asking the team who constructed the model to cut it down will result in an even more inefficient running system. Why? Rather than rearchitect the system to be something different, they might just reduce the numbers in each role. For example, if ten web team members post all the web content, to cut costs, the marketing team might decide to reduce the team by five. Now you have five people doing the task 10 people were doing, and your throughput is 50% at just the point you need to grow. The right answer is to figure out why you have this step in the first place and to re-engineer the business process.
#4 – If the Economics for a 30’x30′ Trade Show Booth Worked Before, They Still Work Now
If the acquired company’s marketing team has a good handle on cost per acquisition, those costs and ROI should be the same pre and post-acquisition. For example, if the acquired company used to run a 30×30′ trade booth and showed an ROI before the acquisition, they can still run the same economics post-acquisition. The challenge comes when they must fit into the acquired company’s trade show strategy, which might not have an ROI.
Cutting down booth spaces, reducing PPC spend, or other marketing tactics of an acquired company impacts its ability to generate revenue. Rather than change its operations to fit the parent company mold, the acquired company’s success in some marketing channels is a potential learning experience for the parent company.
#5 – Simple Product Positioning
Sometimes, a company acquires white space products complementary to its core products. Many times, however, this is not the case. Explaining which product a customer should select is critical to avoid significant noise in the sales, marketing, and influencer ecosystem. Getting to this level of understanding can be challenging before an acquisition closes.
For example, years of sales training have convinced people that product A is better than B and vice versa. Product managers have characterized products as low-end or high-end, ankle biters, etc. Getting on the same page is critical even if the same page is “they are both great products with some feature differences, we intend to merge/shutdown/maintain/end of life product A/B in the future.”
What can’t happen is avoiding making the hard decisions. You don’t have the correct answer if you can’t distill the selection process down to a simple table. A company I once worked with built an elaborate excel model that prospects were supposed to fill in to determine which product they would buy. It was odd since one product was high-end and cost hundreds of thousands of dollars, whereas the other product was less than 10,000 dollars. But since the high-end product team wasn’t comfortable with their value proposition, this exercise was excruciating for everyone. Arrive at a simple table of differences or acknowledge the products are pretty close and market them with this in mind.
#6 -Total Combined Headcount Decreases, But There is Still a Net Add
As part of an acquisition, there are some efficiencies you might be able to implement in areas not tied to specific revenue goals, such as:
- Marketing operations
- Brand and creative
- Director-level leads for the various functions
- Channel marketing if the channels overlap
- Field marketing
- Center of excellence around PPC, SEO
But teams that align to specific products and hence have product-level expertise will need to be kept intact such as:
- Product marketing
- Demand generation
- Influencer marketing
Identifying the key employees with product-level knowledge for each area is critical. While acquisitions can drive some efficiency, the need for product-level knowledge will limit the number of headcount reductions possible. Hence the entire marketing department will go up with an acquisition.
#7 – Maintain the Acquired Company’s Web Presence Until Suboptimal
Acquiring new companies or products can trigger processes to consolidate websites and simplify operations. The intent is good to reduce costs and complexity, but the impact on revenue can be dramatic. Sites with significant search history, links, and domain authority are difficult to replicate. Consider the case of a larger company that perhaps allocates 10 – 20 pages per product, acquiring a small startup with a 500-page website dedicated to selling a single product. Capturing the same amount of search engine energy with much fewer pages may not be possible.
Hence, the rule to follow is to shut down acquired company sites once the parent site significantly outperforms the acquired site. The shutdown might take a few years, but the cost to maintain the extra site is small compared to the potential loss of traffic and revenue from shutting the site down prematurely.
In the case of a carve-out where a product line has no existing independent site, the options are to stand up a new site for the new product or fold it into the corporate site or fold all areas into a new brand. In this case, the brand and product positioning strategies come into play along with understanding the acquiring company’s site performance.
Proceed slowly with any suggestion to “shut a site down” unless those decisions are made by the same people who own the revenue or traffic numbers for an acquired company.
#8 – Email Changes Start a Chain Reaction
Despite a desire to keep separate websites or sales teams or customer events etc., there is one change that is both practical and mostly inevitable that triggers needed changes to a brand. The change involves everyone moving to the parent company’s corporate email server.
New employees are given email addresses on the parent company’s domain for practical reasons such as scheduling meetings, access controls, and access to crucial HR systems. Even in cases where they can hold onto both old and new domains, the “new” domain emails start to leak out in areas such as billing, customer support, and executive communications. Something as simple as combining customer user conferences causes the acquired company’s customers to start getting administrative emails from the parent company’s domain.
The change might be slow, but prospects and customers will start getting emails from the parent company domain over time unless you pursue an authentic house of brands strategy like a car company.
Think about all the implications of prospects getting an email from the parent domain:
- Prospects get emails from a strange domain
- Sales teams email from a peculiar domain
- Invoicing and billing all start to come from the new domain
- Communications with influencers, analysts, and press using the new domain add confusion
- Hiring and job posting likely will use response addresses for the parent company’s domain
The loss of your email domain has significant implications for brand strategy. Of all the acquisition processes, this email domain change is perhaps the most underrated but has some of the most significant impacts.
Developing a brand strategy that connects the acquired company to the parent is critical so prospects connect the dots with the new corporate owner. To solve this, adding “powered by” or “an acme company” to a company’s website and logo is a solid first step in connecting the brands. Adopting the acquired company’s visual language is also a significant step forward.
If you buy a Lexus, you would not expect to get emails from anyone with a Toyota.com domain. The same holds in tech.
#9- Slowly Consider Brand Changes – Real Slowly
Visually connecting the two brands allows prospects to understand why they are starting to get emails and communications from a new domain. Entirely changing and eventually retiring an acquired brand is a vast project, and it is not always clear whether it will yield an ROI. The cost of maintaining two sites is not that high, and if the acquired brand has significant traffic associated with the domain replacing it is not easy. Even if you can get the corporate site to outperform the acquired domain, consider the following:
- SaaS application domains and the engineering costs to change
- Documentation sites domains
- Autoresponders in the product
- Support sites and knowledge base domains
- Connection to open-source projects
- Engineer credentials and secrets
The cost is consequential; if you can live with your acquired product domain, its importance could fade over time. Waiting is almost always a better option.
Acquiring a new product or company can have massive upside potential for developing and contracting companies. The key is to move as slowly as you like to understand where the real opportunities for growth lie and avoid knee-jerk reactions coming from parts of the organization not responsible for revenue generation.