Navigating the M&A Landscape: Strategic Success for Tech CEOs

M&A strategy includes identifying gaps in your strategic growth plan. These may include:

• Products and services. Use whole-product analysis (WPA) as part of your M&A strategy: Analyze current and future customer needs against products to determine which products and routes to market are best for your target customers.

• Market share. Use a mergers and acquisitions scorecard to track competitors that sell similar offerings to your target customers.

• Market expansion. Expanding geographically may gain you new customer segments. Vertical expansion can fuel growth with new industry expertise or supply chain capabilities, as well as customers.

• Routes to market. Acquiring a direct sales team, channel partner program, or marketplace can boost growth, as can original equipment manufacturer, white label and royalty agreements, and outsourcing contracts, alliances and joint ventures,ecosystems and communities.

• Talent and functional expertise. “Aqui-hires” (i.e. acquiring a company for its talent and functional expertise) is one way to quickly fill talent gaps and build a team’s depth and breadth.

• Scale. Acquisitions are an excellent way to grow via scaling to optimize business processes, enhance cross-selling and take advantage of increased pricing power.

M&A strategy also means evaluating and minimizing risks associated with each gap via M&A due diligence and integration:

• Products and services. Minimize risk by focusing due diligence and integration efforts on overlapping product lines. Carefully rationalize or eliminate redundant products.

• Market share. Acquired customers may be unwilling to switch to the new products or services. Change-of-control clauses often allow customers to exit, renegotiate or approve their contract in the case of an acquisition.

• Market expansion. With this type of M&A comes a heightened risk of poor cultural fit, especially in cross-border deals. Address all cultural fit challenges as soon as possible.

• Routes to market. Avoid a poor fit between your products and technology and the capabilities and trainability of the target company’s sales team, or vice versa.

• Talent and functional expertise. Cultural fit plays a crucial role in the success or failure of almost every M&A deal. Another risk is redundant staff.

• Scale. Risks for scale-oriented deals come primarily from failure to manage redundancy.

They don’t come along often, but when they do, so-called “tech-quisitions” can catapult a company’s competitive position and exponentially grow its revenue. A disruptive technology, product or service that offers a different and better approach to solving customer problems can provide all the benefits of owning a proven solution with fewer risks and costs involved in conceptualizing, innovating, building and launching one.

Disruptive technologies can provide new functionality and greater efficiency at lower cost. However, as with many high-reward endeavors, there is risk. Some of this risk can be offset with strong evidence of product-market fit (e.g., customer success stories). Successful acquisitions of this kind feature clear strategy, analysis, business planning, due diligence and integration roadmaps. Be sure to follow due diligence with comprehensive integration and synergy capture.

Mergers and acquisitions offers tech CEOs a unique opportunity to tap the multiplying power of synergies:

• M&A can bring new products and services to cross- and upsell to your target audience.

• An acquired company’s target audience may fit your customer profile, offering a new audience for your products and services.

• The pricing power gained through market synergies boosts market share, raising profits and cash flow and attracting investors.

• Growth from acquisitions enables higher economies of scale that facilitates companies to sell to more diverse customer and geographic market segments at lower unit costs. The result: Lower customer acquisition cost, lower cost of goods sold, higher gross margin, and lower general and administrative, sales and marketing and research and development costs as a percent of revenue.

• New account growth, cross-selling and upselling, customer stickiness and reduced churn increase customer lifetime value and net revenue retention.

Assign responsibility for capturing synergies with defined KPIs and target milestone dates. When synergies are captured, the result will be a successful acquisition.