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Success factors for VARs and MSPs integrating systems after a merger

Channel companies such as VARs, consultants and MSPs are in acquisition mode. But how should they go about integrating the firms they have purchased?

Patrick Wiley has management of the post-merger-and-acquisition environment down to a science.

That's due in no small part to the fact that Wiley, president and COO of Aldridge, a managed services, consulting and outsourcing firm, has done 11 tech acquisitions in the past few years; two so far this year alone. Aldridge has come up with a pretty methodical process that includes a project integration plan with more than 400 steps based on lessons learned.

"We start using it about 30 days prior to close. About every department in my organization is involved and we start rolling through it," said Wiley. "To say it's complex is an understatement."

Those steps include studying what the employee benefits package at the acquired company looks like and what are the new employees' expectations for their work schedule.

"We line up all the pieces pre-close and that allows us to react with quickness at post-close," he said.

Aldridge's approach may be unusual, but its merger and acquisition (M&A) participation certainly isn't. There have been a number of M&A transactions in the channel in recent years and industry insiders say that trend is expected to continue, so it behooves companies to think about people and culture, as well as business and technology challenges, after the dust has settled.

Integrating personnel

One of the biggest issues with tech acquisitions is integrating personnel, including executive leadership, according to observers and those who have gone through it.

"Generally, the chief executive stays on for the transition but gets phased out later," noted Carolyn April, senior director of industry analysis, at CompTIA. "But you've got the blending of staff, and a lot of considerations there from culture on down as to how you best integrate them."

"You almost have to bend over backwards to keep your employees," noted Bill Fistori, CEO of W3G Advisors, a small business consultancy, who has both acquired a company and been part of an M&A.

"Most people don't like change and if you just change everything all at once it can be very frustrating. You have to take that into consideration and figure out how to make it as transparent as possible" for the newly acquired employees, Fistori said. Because channel companies are in the services business, "employees that deal with the clients are very important. If you lose key people you're going to lose key clients," he noted.

Patrick Wiley, president and COO of AldridgePatrick Wiley

Wiley agreed, noting that generally they try to bring on all employees in an M&A because they believe their client base and employee base are equally important. But he added that "both have to be willing to transition or we won't do business. In a service business like ours, it won't work unless both of those are willing to come along for the ride."

Dealing with culture

Factoring in different corporate cultures, as Aldridge has found, is another big consideration.

Companies wouldn't merge if executives didn't see synergies in the first place, April added. "So you'd hope they would take a good look at what each company brings to the table."

Aldridge's general philosophy is to change as little as possible in the first 90 days, Wiley said. "We do client satisfaction surveys pre-close so they look like they're coming from the selling company … so we know what we're getting into" and how likely those clients would be to recommend the selling company to others in need of IT services, he said. "We want to know exactly what we're dealing with." Any low-scoring items get addressed quickly, he added.

One of the survey issues he said he's surprised by after the purchase of a "troubled asset situation" is how often that company doesn't get back to a client when that client is trying to spend money with it, Wiley observed.

Newly-acquired employees are treated like any new employee at Aldridge. They generally take 100 percent of the technical operations staff, Wiley said. "We don't necessarily do the same with general administration [staff]" because Aldridge has centralized accounting and human resources, and those functions are at capacity. "We're always looking for good technical folks. We do do a placement interview process, which looks like a skills assessment, and interviews with the leadership of the technical teams, and that's where we determine where they fit in our organization."

The most successful M&As are transparent to customers and employees, which makes for most smooth sailing.
Carolyn Aprilsenior director of industry analysis, CompTIA

Sometimes people are eliminated, but typically that occurs when they are "skills deficient more than anything else."

In most cases, executives from the companies Aldridge acquired chose to sell their firms in an effort to move on to other opportunities, Wiley explained. Out of the 11 deals Aldridge has done in recent years, only three executives were brought in from the acquired companies, and in those cases they were shareholders, he said. Today, only one remains.

"The biggest reason is … cultural differences between organizations [are] very nuanced and typically very vast," Wiley said.

He added that those differences aren't necessarily good or bad. The executives who stayed immediately after their companies were acquired by Aldridge "never quite jelled, with the exception of the one remaining."

Because their culture is very focused on high growth, "it takes the right person, the person who likes to inflict pain on themselves and be part of that growth cycle, and that's usually where trouble comes in,'' Wiley added. "It's a lot of hard work."

Just as soon as one company is melded into Aldridge, he said, they buy another organization and "there is so much change in a company growing as fast as we are it's hard … for a person to sign up forever. Then you have personality differences that factor in."

Onboarding clients

Operations within an acquired company tend to start changing in the first 90 days after the deal closes, Wiley said. Because different companies use different tools, that is probably the most involved process and they handle it on a client-by-client basis.

"So if we had 50 clients in a transaction they continue to operate with the same folks and systems [they were using], but on the other hand, we're onboarding them as if they are brand new to us." Aldridge makes sure clients are informed within 72 hours of the close that they have been acquired, usually through the client's account manager. "We try do phone calls and in-person meetings and email. They will get a series of communications from us and we're upfront shortly after the transaction to let them know it's happening and what to expect."

The biggest IT integration challenge he finds is when Aldridge buys smaller companies and the seller had very little in way of standardization. This situation can lead to a lengthy technology replacement cycle in the aftermath of tech acquisitions.

"It's whatever technician designed it in whatever way and type. Out of 50 clients I may have 30 different types of technology, whereas with Aldridge we don't have strict standards, but general types and models and brands we use across all of our client base." In the former scenario, it typically takes Aldridge a couple of years with each integration to get things replaced at client sites -- or learn new technology, in some cases.

The ideal situation, according to Fistori, is for the acquiring company to take a "pragmatic approach to phasing in all the aspects of integration to a new company."

The biggest thorn in Wiley's side is the backup and disaster and recovery of a client's data, and discovering backups weren't running correctly – or being done at all -- when a client needs data restored, he said. "We are hyper-focused … that we have a good way to recover data. I can tell you from a history of doing these transactions, that's one of weakest parts of service delivery."

Post-M&A: Transparency critical

For any post-M&A to be successful, there has to be good buy-in from personnel and reassuring them in a time of apprehension, said both April and Fistori.

Echoing Fistori, April said, "The most successful M&As are transparent to customers and employees, which makes for most smooth sailing. Because most MSPs [Managed Service Providers] are small they have close ties to their customers and have become trusted partners … It's very important to get down to that level and make sure [the acquired company is] communicative with employees and customers."

Not all employees and customers will stay on, she added, but if the process is handled well, it's bound to pay off in the long run.

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