How Post-Merger Integration Differs for Technology Companies

Tech companies need post-merger integrations (PMI) more often than most. What can they do to make the most of their deals?

Tech companies operate in competitive industries where survival often depends on scaling up quickly. Acquisitions offer accelerated growth, but too many acquirers focus on the deal-making and postpone their integration efforts. This not only delays growth; it also risks the success of the deal.

Slow integration creates uncertainty, scaring away customers and employees. To avoid this trap—and realize the deal’s full growth potential—technology companies must execute a swift and targeted PMI effort.

Three differentiators in BCG’s approach to post-merger integrations are our management of sales and product integration, merging technology talent, and integrating cultures.

Capturing Value in Technology Mergers

Capturing Value in Technology Mergers

Capturing Value in Technology Mergers

Applying Agile to Post-Merger Integration

Applying Agile to Post-Merger Integration

Merging Technology Talent and Culture

Merging Technology Talent and Culture

Sales and Product Integration

To create real growth in a merger, go-to-market teams must learn to cross-sell the expanded product line. This requires first combining the two product portfolios into a coherent offering. Acquirers should develop a single roadmap that optimizes the overlapping products and integrates future development. In deciding which products to keep, sunset, or migrate, they can use both financial and brand analysis. There may be some leeway when it comes to varying packaging and pricing according to customer group, but even here both companies must align with an overall strategy.

Many acquirers seek to scale a startup’s technology—in which case product development must be approached with special urgency and care.  Other mergers involve each organization contributing a separate technology to be combined into a single new disruptive product. In both cases, it’s essential to promote thorough integration of the R&D and engineering teams. If the acquirer dominates the staffing of the new organization, important people will be shut out of decisions and the future product will suffer.

In the midst of this work, the two organizations must communicate with customers and reduce the risk of defection, especially for overlapping accounts. The sales force can work with those accounts to explain the benefits of the merger, and use share-of-wallet analysis to promote cross-selling. Short-term sales incentives may also help. The sales force will need training not just on unfamiliar products, but also bundling and other single-supplier advantages.  After year one, the new company can work on integrating products into larger solutions, and on joint product development.

Cost synergies still matter for acquisitions, but take a back seat to promoting growth, since revenue synergies typically determine the success of the deal.

Swiftly Merging Technology Talent

Acquirers can begin the integration on day one with advance preparation, especially through clean teams. These teams can do much of the analysis and other groundwork so acquirers can make decisions immediately after close. They can get started right away on aligning the product portfolio and the go-to-market effort.

BCG has developed and tested a new way to run technology integrations for software companies. In our approach, leaders run the integration as series of iterative sprints, similar to the agile processes used in developing software. Leaders are empowered to make decisions, with a bias for action.  Agile not only enables earlier growth, but also reduces uncertainty for anxious employees.

Talent matters more in technology than in other industries, so it deserves special attention. If the integration goes smoothly, but key people leave, the deal is likely to miss out on growth. To reduce the risk of departures, acquirers can divide employees into segments by role, and pay special attention to high-risk segments such as developers.

Integrating Cultures

In their haste to push through the integration, acquirers often neglect to achieve a strong common culture in the expanded organization.  Cultural integration is especially tricky when large, process-laden companies buy small, nimble firms. Talented employees of the latter can grow frustrated with their new managers and easily find jobs elsewhere, greatly diminishing the value of the deal.

Cultural integration requires thoughtful attention, but can still be run with the same agile approach as the rest of the integration, with clear metrics.

Most software and technology deals are growth-driven, making cultural alignment especially critical.  BCG has developed an analytical and systematic approach to culture that enables companies to tackle this somewhat intangible topic in a practical and action-oriented way. The key is to first define the principles and goals of the integration, and then analyze the two organizations’ current cultures. As the integration proceeds, conduct regular pulse checks and adjust as needed.

For tech integrations, communication is not a nice-to-have, but essential to reducing uncertainty and ensuring coordinated effort. In a communications vacuum, people will assume the worst, so it is key to be proactive and control the change narrative. Begin the process early. Even before decisions have been made, leaders can communicate the objectives, approach, timing of key milestones, and who is involved. Providing this clarity can be very helpful, calming employees, giving them direction, and allowing them focus on their day-to-day. Acquirers should make the integration as visible as possible, with credible, timely, and consistent information.

Meet BCG’s Experts on Tech PMI

  • Leads BCG’s M&A and post-merger integration work in North America
  • Organizational design
  • Transformation programs
  • Cost efficiency and process improvement
  • Due diligence and integration planning
  • Cost-cutting strategy
  • Procurement best practice
  • Growth strategy
  • Semiconductor R&D and productivity
  • Value-based engineering
  • Organization and operational models
  • Growth strategies and transformations in high tech, telecom, IT and engineering services
  • Postmerger integration
  • Transformation
  • Media and music
  • Communication and change management
  • Global lead for Enterprise Software & Cloud
  • Next-Generation Sales models topic co-leader
  • Lead for Technology Media & Telecom practice, US East Coast
  • Leadership team, BCG Gamma advanced analytics and artificial intelligence
How Post-Merger Integration Differs for Technology Companies