Getting the “people strategy” right can make or break the value of a digital M&A deal. Traditional, non-tech companies are investing billions of dollars to acquire nimble companies that develop software or specialized technology to complement existing portfolios. However, acquirers may be putting their capital at risk without a well-thought-out talent strategy.
Companies focus enormous amounts of time on getting the right deal valuation, developing the product strategy and crafting go-to-market plans, but then wonder why digital deals struggle to produce the desired value. The missing puzzle piece when acquiring up-and-coming technology companies is often the treatment and retention of the nimble-and-talented team that drove the development of what could be a new generation of products and services. To understand the right retention incentives, retain important elements of the culture and create an environment that will continue to foster innovation, work starts in diligence and it continues through post-close integration.
Innovative technologies will test leaders’ ability to change ways of working and thinking. But buyers who understand the transformative value of digital talent can boost a company’s reputation and improve negotiations in future deals.
Three talent and culture challenges to consider during the M&A process
1. Choosing the right operating model
When thinking about key talent — and retaining what makes a company interesting and unique — there are three approaches to integration. In the most arm’s-length scenario, maintaining the target’s operations separately is an option. This preserves the acquired company’s culture and leadership and reduces retention risk. But the lack of synergies and governance could lead to operational risk.
Opposite that is full integration, which allows for economies of scale and strong operational synergies, along with an influx of talent. However, if the target’s culture and innovation are fully absorbed, talent departure risk can be significant. The right strategy may be a careful, hybrid model to evaluate what to preserve. While harder, done well it may result in the flexibility needed to grow long term. This allows for synergies and governance protocols, but also preserves the target’s culture without giving up the strengths of the buyer’s culture. Corporate development partners are important in aligning incentives so that key talent stays or helps in the transition.
2. Embracing change for seamless digital integration
Acquiring a digital asset acknowledges the need for change, which requires a mature mindset and flexibility. Companies acquire new digital assets to help drive toward a new future offering or even more boldly, a new future for the company. And though the buyer may have been successful in the past with their set ways of working, they may need to rethink what they are doing internally. Sales employees may need to adopt a new way of selling something they may not fully, technically understand. Sales incentives will be different. Orders may need to be processed differently. The larger and more mature the buyer, the harder it is to change. But starting on day one, making integration as easy and seamless as possible can change the growth trajectory of a new offering.