• December 9, 2015

How a Tech M&A is Like a Tattoo

The other evening, whilst in San Francisco for a project, I met up with an ex-boss of mine, now a friend, in an unpretentious bar in the Presidio for a regular—if infrequent—catch-up. A great dealmaker, she moves these days in serious venture capitalist circles, specialising in tech and media transactions. Enjoying our respective drinks and a truly beautiful summer sunset over the Bay, she suddenly turned to me and said: “The barman reminds me of a deep truth in M&A.” Perplexed, I asked her to expand on this association.

“Simple, really,” she said. “Acquisitions, especially in high- tech, are like tattoos: It is much easier to add one than to get rid of any. Just look at his [the barman’s] arms and neck and his calves.” I could see she had a point. In the same way that the barman was adding close to a new tattoo a month (something we discovered later, chatting with him at the bar), our shared experience of M&A pointed to a pattern of addition—sometimes verging on addiction.

CIOs who have been involved in acquisitions will be familiar with the whirl of emotions that accompanies these pursuits: the thrill of the chase, the exciting discovery during the due diligence phase, the midnight oil consumed to reach agreement, and, throughout the process, the constant encouragements emanating from the entourage of advisors with a not-too-well-hidden incentive in carrying on.

Come the morning, you own this new addition to your business—just like that freshly inked tattoo so proudly sported by our barman. And as CIO, it is your job to get it to interlock with the parent, so that customers and internal users can benefit from a seamless experience. At the same time, you are also asked to generate cost synergies—a large part of which tend to be in IT.

Stakes are high, time scales are short. Exciting stuff. Market-wide data bears this out: Whilst EY has reported on the demise of M&A volume1, TechMarketView noted recently that tech buyers were favouring market share over margin.2  Vanity getting the upper hand over sanity?

Contrast, then, the divestment scenario: Oftentimes, something has gone awry—a part of the company is not strategic anymore; revenues and margins disappoint; the integration of that (so exciting at the time) acquisition into the parent organisation has failed; or the cost synergy, in IT or elsewhere, has not quite materialised. Compounding the situation, the best people in the business are not there to help: They have either been put on the next deal or, if they came from the acquired operation, they may have seen the writing on the wall and pre-emptively gone off to greener pastures.

There may well be urgency in cutting the cord—in fact, as one of my clients discovered a few months back, there ought to be. A potential buyer left waiting for too many months to buy part of the company is likely to pull out and, in this recent case, did walk away. Overall, though, there is little in the way of enthusiasm. Like an old and faded tattoo, it’s hard to muster the energy to get rid of it.

Here, too—as my VC friend reminded me—CIOs have a central role to play in the removal of that no-longer- desirable bit of the body corporate. Ring-fencing the technology estates whilst ensuring operational continuity are essential priorities for CIOs and their teams, which often need surgical precision. Transitioning to the new reduced operating model is critical. When energy is lacking, the CIO’s leadership and execution focus tends to be the vital ingredients to get to closure.

And, as our barman confessed even later that night, if all else fails, there are great deals on tattoo erasure in the Bay area.

Sources:
1 “UK M&A values plummet over 65% in 2012 compared to the credit boom of 2007,” EY, 13 December, 2012

2 “European tech buyers favouring share over profit,” TechMarketView, 8 July, 2013