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Stay or Go? Navigating Tech Investment Decisions Amid Never-Ending M&A Activity
This five-step guide will help organizations decide whether to continue with a vendor post-acquisition or switch to a new provider.
ITPro Today
March 25, 2024
7 Min Read
Alamy
Regardless of the business climate at any given moment, merger and acquisition (M&A) activity generally continues unabated. In the past year across the cloud/FinOps landscape alone, we've seen IBM's acquisition of Apptio for $4.6 billion, HP's acquisition of OpsRamp for an undisclosed amount, and most recently, Broadcom's acquisition of VMware for roughly $61 billion. These deals are often sweet for shareholders, but they can be far murkier for the enterprises that rely on the acquired companies for essential products and strategic services. Acquisitions send ripples through the tech industry, leaving ecosystem players with myriad questions about their future and seeking clarity on how to navigate the evolving landscape.
In a business landscape constantly in flux, enterprises need to embrace adaptability, proactive thinking, and strategic planning. They need to wager on which vendors and partners will have staying power and will do right by them. Oftentimes, these are big bets.
So how should enterprise leaders decide how to proceed when their partner or their vendor has been acquired? Here's a framework for systematically grappling with the challenging decision of whether to continue with a vendor post-acquisition or switch to a new provider.
1. Understand the New Dynamics
The first step in navigating uncertainty is gaining a comprehensive understanding of the new landscape and business dynamics, which typically introduce shifts in product roadmaps, support structures, and partner programs. Enterprises must seek clarity by pressing their partner or vendor for frequent updates about the changes and their potential impact on existing infrastructures and operations.
Transparency is essential, as is receiving assurance that they have the proper support staff in place to ease the transition. If the new entity can't provide that clarity quickly, that might be an indicator that your organization is not going to be a priority for them.
2. Consider Vendor Size
The next consideration is whether the advantages of size outweigh the advantages of personalized attention. When the acquisition ends up creating or adding to a mega vendor, there can be advantages to staying with the new entity:
Extensive Resources: Mega providers often have extensive resources, which can be beneficial for enterprises with complex needs and large-scale operations.
Integrated Services: They may offer a wide range of integrated services, which can be convenient for enterprises looking for a one-stop solution for their FinOps and other related cloud needs.
Established Reputation: Mega providers typically have an established reputation and a proven track record, which can provide a sense of security and reliability to the enterprises.
Economies of Scale: They may offer cost advantages through economies of scale, especially for standard services that benefit from high volume.
However, in many cases, it may make more sense to turn to a smaller, dedicated, more nimble vendor that can be more adaptable to your organization's specific needs:
Personalized Attention: Smaller providers may offer more tailored solutions to meet the specific needs of the enterprise, as they typically have fewer clients and a more focused approach.
Agility and Flexibility: They can often be more adaptable to the unique requirements of your organization, as they can make faster decisions and implement changes more quickly compared to larger providers.
Cost and Value: They may offer cost-effective solutions and a greater focus on delivering value as they strive to compete with larger providers by offering specialized services, competitive pricing, and more efficiency.
Collaborative Partnership: Smaller providers may foster a closer relationship with your organization, leading to better communication, understanding of business goals, alignment of services with your organization's objectives, and ultimately a vested interest in your success.
The choice between a smaller provider and a mega provider depends on the specific needs, priorities, and resources of your organization. Even if the above doesn't clarify the decision for you, there are other important considerations to take into account.
3. Build a Strategy Around Diversified Vendors Committed to Interoperability
As the tech industry undergoes major transformations, there can be advantages to diversifying vendor relationships and investments. Relying on only a single provider or even just a few may leave an enterprise vulnerable to disruptions caused by further acquisitions or other market shifts.
The best way to future-proof your organization against vulnerability to further marketplace disruption is to align with vendors that are committed to full interoperability. Today's cloud tech stacks comprise numerous tools, services, and applications that must work together seamlessly to manage all business operations. While mega providers may offer a one-stop shop for all components in your stack, if these components aren't fully modular and interoperable, your organization runs the risk of getting locked into paying for and/or using tools and services you don't want or need. Aligning with vendors that swear by a composable approach — open, interoperable, and replaceable — will ensure your organization has access to the most relevant solutions that are custom-fit to your organization's current needs (inclusive of your homegrown proprietary solutions) and changeable when your needs evolve.
When evaluating vendors, listen carefully for clues to indicate which vendors are in the ecosystem for the long haul as opposed to looking for a quick exit:
Look at the founder's pedigree and previous tenures/company lifecycles.
Look into their investors, any private equity firms and holding companies involved with your vendor.
Know whom they count among their strategic partners, other customers, etc.
These insights can paint a pretty clear picture of your vendor's staying power. If the vendor works with a number of government agencies and are deeply integrated in the public sector, for example, chances are they're here for the long haul and will continue to build innovative solutions.
4. Assess Likely Impact on Operations
If your organization is considering staying with the acquired vendor, perform a thorough assessment of the acquisition's potential impact on your organization's operations. Be sure to assess the compatibility of the new management, structure, playbook, roadmap, etc., to identify likely gaps. If any gaps are identified, be sure the vendor has a formal process in place to address any issues.
Furthermore, seek to fully understand the financial impacts to your organization of continuing with the acquired vendor. Oftentimes, new pricing structures, models, thresholds, packages, and payment term nuances can disrupt if not blow up the previous economics of working with the vendor. Know exactly what you are buying and the total cost of ownership. Assume or presume nothing. Proactive and thorough thinking will help prepare your organization for any challenges or disruptions that arise from the acquisition.
5. Ensure Effective Communication During Whatever Path You Decide to Take
The final consideration here may be last on this list, but it shouldn't be last on your priority list. Make sure you thoroughly communicate with your internal teams, especially the most affected departments. External change to a trusted vendor or partner can have significant effects on your organization's personnel. Engage your internal communications team to effectively articulate how your organization is responding to your vendor's or partner's acquisition. The last thing your organization wants is to experience a high degree of turnover or burnout among the teams that are on the front lines of working with the vendor or partner.
Navigating the ever-evolving landscape of tech investment decisions amidst ongoing M&A activity requires a strategic approach grounded in adaptability, foresight, and clear communication. It also demands that you dispassionately read the tea leaves and act upon what you see accordingly. Enterprises must diligently assess the new dynamics introduced by acquisitions, carefully weighing the advantages of partnering with mega vendors against the benefits of personalized attention from smaller providers. By following this five-step guide, enterprise IT decision-makers can navigate the complexities of tech investment decisions with confidence and resilience in the face of ongoing industry shifts.
Craig Hinkley is CEO of CloudBolt Software.
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