It is common to see smaller companies in the IT market accept VC funding or get acquired by bigger players, and for many, it’s the end goal. In the IT automation space alone, market consolidation has played out time after time – with behemoths such as CISCO, IBM, BMC and CA (News - Alert) Technologies acquiring smaller, niche players. The latest of these announcements came in January 2017 when CA Technologies finalized its acquisition of Automic.
While there are cases in which there is a clear value proposition for the customers of the company being acquired, it’s a rare occurrence. Change can be intimidating, painful, and often comes with a great deal of uncertainty – this is especially true for customers of the company being acquired, as they are usually the ones that lose out. However, when a customer learns that a product they are using has been “bought out,” there are certain questions that can be asked and research that can be done to get a better sense of what the future will look like for the product in question.
Acquisitions = a shift in priorities
The priorities of companies that have been perfecting their product based on customer needs will shift after they are acquired. No longer are they only answering to the customer, now there are third-party interests that must be considered. When a company is able to focus solely on customer feedback, without having to answer to a third party, decisions can be made quicker, and more often than not, in favor of the customer.
In addition to a shift in priorities, the company being acquired will likely bleed talent after the acquisition closes. Depending on the scenario, employees may be forced out, while others jump ship as they look to work for another independent company that offers greater creative freedom. Let’s examine Yahoo as an example. In under three years, Chief Executive Marissa Mayer spent over $2.1 billion to acquire over 52 startups to help save the company from Internet irrelevance. Roughly one-fifth of the startup founders and CEOs who joined through an acquisition have now left. This includes the founder of social media Web browser Rockmelt (News - Alert), Eric Vishria, who left Yahoo to become a venture capitalist at Benchmark, and Lexity founder Amit Kumar, who left to create a new professional networking app.
No matter if it’s from layoffs or employee choice, loss of talent leads to decreased innovation. In turn, this means the acquired company’s product runs the risk of being absorbed into their parent company’s offerings, or worse, ignored.
Looking at the past to determine a product’s fate
Doing your homework is the best action to take if a product you use is acquired. Don’t know where to start? Here are a few questions to ask to get a better sense of whether the product you use will be properly supported.
Does the parent company:
The impact niche players have on the industry
After you get the answers to the questions above, take some time to analyze what you uncover. If everything falls into place, there is a chance that it could turn into a positive experience; however, if the answers aren’t up to par, take a look at the other independent players on the market.
According to Deloitte’s (News - Alert) end-year report on M&A trends, 75 percent of respondents expect deal activity to increase in 2017. With more companies selling out to larger conglomerates, there are fewer companies that can truly say they take a “customer first” approach to business. Only independent companies with no outside funding are truly able to make the customer their number one priority. At the end of the day, independent, niche companies will always have their place as customers not only want to work with companies that offer innovative products, they also want assurance these products will continue to be supported and refined long-term.
While acquisitions have their place in the market, there are typically winners and losers in every case. It is up to the customers to do their research to understand where they fall on the spectrum, and to understand what their next move should entail.
About the Author
Jim Manias is vice president at Advanced Systems Concepts Inc. and is responsible for the overall market strategy and planning for a range of products including ActiveBatch Workload Automation and Job Scheduling. Jim has been with Advanced Systems Concepts since 1991 and has held multiple senior management positions in the enterprise software and hardware market. Jim can be reached at JManias@advsyscon.com.
Edited by Alicia Young