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Tech acquisitions: 'You cannot purchase a channel'

During mergers or acquisitions, vendors must decide what to do with the companies' respective partner programs. The decision can impact channel momentum.

Mergers and acquisitions in the IT industry can throw a wrench in a channel partner's plans. If you have worked successfully with a particular vendor's partner program, a merger or acquisition (M&A) may change the program or even shut it down.

Diane Krakora, CEO of consulting company PartnerPath, said there are essentially three approaches a company can take with an acquired company's partner program. Each approach has its virtues and drawbacks, depending on the type of partner community associated with the acquired technology, she said.

The first approach is integration, she said. Integration is typically used when large vendors, such as Oracle, IBM or Dell, buy a small company -- e.g., IBM buys FiberLink. The acquiring vendor pushes the acquired company's channel program into their own and tells the acquired company's partners to sign up. "[For partners,] it's like starting over again," she said.

"I think the reasons to do the [integration approach] is because it's quick and easy and you're usually taking a smaller community into a bigger community but you're not really changing anything for the 14,000 or 140,000 partners you may have already when you're bringing in 2,000 partners," she said.

A more complicated but, in many cases, more ideal approach is a merge. The acquiring vendor will identify the best features and practices of the acquired partner program and incorporate those features into its existing program. Dell's acquisition of Quest Software in 2012 illustrates the merge approach. Usually, the two companies coming together are of equal size, Krakora said.

Michael O'Brien, executive director of global channels and programs at Dell, gave an example of a feature from Quest's program that Dell decided to add to PartnerDirect.

"Quest had an ability to essentially do a referral program. … Dell never had a referral program. We didn't have the mechanism, nor was it something that was in our DNA to go do," said O'Brien. "When Quest came in, we looked at it and said, 'You know what? It's going to be important to that business to maintain [the referral program] and make sure that we can talk to customers about how our partners ... can still do that type of business, where they can go in and influence and bias a customer to go use Quest Software.'"

"So there's an example of something brand-new, [a] foreign concept to Dell," he said. "We fold it into PartnerDirect, and we do [a referral program]. Then we're actually looking for areas where we may be able to expand that, because it's a great concept."

PartnerPath generally aims for a merge when consulting M&As, Krakora said. "We want the merge. We want to take the best of both worlds and put them together and have an even better umbrella or overall unified program. That's kind of ideal," she said.

Krakora calls the third method "the do-nothing approach." With a do-nothing approach, the acquiring vendor simply leaves the acquired partner program running separately from its own. This approach can work well if there is no overlap of the partner communities of the two companies.

'You cannot purchase a channel'

Whether your vendor decides to integrate, merge or do nothing, vendors may mistakenly assume that the acquired company's partners will come with the acquisition.

The channel is definitely an asset, but it's not a purchasable asset. ... The partners are free to move.
Diane KrakoraCEO of PartnerPath

"You cannot purchase a channel," Krakora said. "You can purchase the technology. The channel is definitely an asset, but it's not a purchasable asset. … The partners are free to move. They can continue to sell your products or not."

Krakora said that maintaining channel momentum is a challenge that vendors face during a merger or acquisition. Partners on both sides of tech acquisitions may panic in response to the rumors or news of the acquisition, and if partners' fear, uncertainty and doubt (FUD) go unaddressed by the vendor, the channel can engage in unproductive activities, such spending time and energy on looking around at other options and covering their bases in case they are faced with disruptive program changes, she said.

"[The acquisition] starts to really create uncertainty in the partner community, which means the partner community starts to look at other options. It might not necessarily lead to a switch, but they at least start looking, which of course takes away from the No. 1 thing you want them to do, which is sell."

In some cases, the vendor focuses on a particular feature of the acquisition, such as the technology it is purchasing, at the expense of the people that have been selling the acquired company's products. As a result, the channel becomes a backburner concern during the M&A process.

"Particularly if you're the acquired company, you need those revenues. You need your channel to continue to produce as the acquisition goes through," she said.

Managing FUD

To keep momentum, vendors should "woo" the channel throughout the entire acquisition process, Krakora said. "[Vendors] really need to [ask], 'How do I woo the partner again and again and again and again?' And when you do an integration or just say, 'OK, now, all you guys … here's our new policy,' … it's not a wooing."

It's important for vendors to communicate extensively with partners to let them know what's coming down the line before the acquisition is completed. "Communicate, communicate, over-communicate. You're basically recruiting both sets of partners all over again," she said.

Dell has engaged in a wide range of communications during its tech acquisitions, O'Brien said, including mass email campaigns, town halls, webinars and council meetings. "I'd say that it ranges from the very high-level mass media thing, all the way down to the very detailed, 'touch' level, if you will, where we're working with those partners on a daily basis," he said. "So, as an example, we will do a very high frequency of local events with our partners."

The plans that are laid out in those communications must then be executed "flawlessly," Krakora said. "Basically, you have to do what you said you were going to do when you were over-communicating."

But it is also important that during the process vendors remain available. "Be available, even if it's through outreach from the channel account manager. Educate that channel account manager so they know what to say, versus [some] guy going, 'I don't know. I haven't heard anything. I heard we're going to merge, but I don't know what that means to you,'" she said. Vendors should also provide an outlet for partners to vent, such as chat rooms and even hotlines.

Channel partners should be vocal if they are worried about the impact of a tech acquisition. "It's not about being vocal about, 'What are you going to do for me?' But don't sit on the sidelines and say, 'They'll tell me something when they want to tell me something,'" Krakora said. "If the channel partners do have those really strong relationships on both sides with those executive leaders, they'll be able to say, 'Hey, don't forget about us. We're out here turning the profits, and we're trying to run a business.'"

Next Steps

Find out how to weather the storm of M&As among IaaS providers

Read how cloud has accelerated the pace of MSP buyouts

A guide to preparing for vendor mergers and acquisitions

This was last published in October 2014

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