Global tech enterprises are in the midst of one of the most significant periods of merger and acquisition (M&A) activity the industry has ever seen, hitting record levels in 2016. Last year, we saw the largest tech merger of all time – as Dell acquired EMC for $60 billion – but we also saw 3,795 other deals of all shapes and sizes hit the headlines. With analysts predicting that this thirst for acquiring SME firms is set to continue, small business leaders must prepare for what appears to be an inevitable interest from the tech giants.
Making the most of the opportunity
The prospect of acquisition for tech SMEs needn’t be daunting but rather an exciting opportunity. The deal sizes can be significant and companies operating in areas like cloud, cyber security, Internet of Things, big data, analytics, gaming and connected cars all look set for increased interest in 2017.
However, M&As are far from an easy cash in – between 70 per cent to 90 per cent of M&As fail to deliver expected value and the two biggest threats to a deal are integration and unrealistic operating cost assumptions.
It is crucial for SME tech leaders to understand that M&As do not happen overnight, that they are complex to complete and that the additional workload can be significant. If small business employers are to capitalise on the current appetite of the tech giants they must ensure that they are not just an attractive target, but that they can also ensure a successful acquisition.
They must ask themselves three questions: do I understand the process, is my workforce ready and do I have the resource in place to manage the transition successfully?
Understanding the process and the workforce complication
Long before any public announcement is made, the company making the acquisition will have put significant work into identifying potential targets, evaluating a strategic fit and negotiating the parameters of the deal. Once announced, it can still take several months until the transaction is closed — a period that may be driven by regulatory or shareholder approval.
This time will frequently incur additional workload as teams work to keep the business running as usual, alongside pairing up with regulators and integration/handover teams to push the deal through. SME leaders who understand this process, the timing and workload considerations can ensure that the acquisition is a success.
Preparing the workforce
Next, SME leaders must act upon their knowledge of the process to ensure that their employees are properly prepared for the strains of the impending acquisition. Key areas to focus on here include the following:
· Compliance: workforce compliance is a particularly complex area during a transition such as a merger or acquisition. SME employers must ensure that they can track and continuously update compliance documentation across all areas of the operation. This data is critical and is sure to be called upon during an acquisition.
· Data and viability: merging a workforce with that of a larger organisation and the technology that tracks this movement is a data-driven exercise requiring large-scale transparency. Small businesses must ensure that they have a complete picture of who might be working on their premises or on their behalf at any given time – particularly through the volatile transition phase.
· Policy: It is important to understand which policies will impact the business’ ability to generate cost savings and deliver quality and value. If there is a disconnect across the organisation, it can create disincentives from a potential M&A standpoint.
Getting resources in place to manage the transition successfully
Making sure that these areas are taken care of while running the day-to-day operations of the business at the same time is a daunting task for any SME employer. This is particularly pertinent when you consider the complexities of some of the compliance and data regulations that are coming into force – including GDPR. Businesses of all sizes, including SMEs, will have to make sure that their compliance is up to scratch.
In response, many SME tech organisations going through a merger or acquisition are increasingly turning to experienced contractors to supplement their existing workforce. Contractors are a powerful asset for SME acquisition targets as they can fulfil the short-term surge in activity without putting a permanent headcount and cost implication on the balance sheet that may not be required once the integration has been completed.
Crucially, much of this highly specialised talent will also bring a wealth and variety of invaluable experience to the organisation having been through similar procedures in other businesses. As a result, this temporary investment can be used to upskill existing employees and advise on the acquisition process internally.
The technology sector is ripe for M&A activity and as a result, many SME leaders should start preparing now for the inevitable movement further down the line. Part of this comes down to working out how they can maximise their position as a lucrative choice for acquisition, but also ensuring that their workforce is in the best shape possible to withstand what can be an incredibly difficult but exciting time for the business.
Martin Ewings is director of regional sales and specialist markets, UK & Ireland, for Experis.