Corporate M&A deals are the backdrop for lots of fictionalized Hollywood dramas. But in real life, rollups of software companies have truly dramatic impacts on the organizations that rely on those software products. Regardless of whether one company is acquiring another’s client-base or its technology, the “DNA” of the two companies will never be the same – and that has a direct impact on both companies’ clients.  

Think of brands like Sun Microsystems, Tumblr, Skype, AOL, Myspace, and Flickr. They were all wildly popular companies that pioneered their markets. They were built on unadulterated technology. They were small enough to innovate quickly. They were nimble and responsive to users.  

Until they were swallowed up. The ingenuity, agility, and clarity of vision were instantly compromised. But in the wake of corporate acquisitions, a lot of expensive “lipstick” is applied to give the illusion of freshness, strength, synergy, and progress. Under the mask, the reality is quite different. 

Eventually, the brands become shells of their former glory; the users grow frustrated and leave. When that happens to trendy consumer brands, it’s a big bummer for their fans. When it happens to B2B software that’s been implemented across an enterprise, it’s a catastrophe.  

We’ve compiled 6 of the harsh realities of software company rollups and how you can avoid them. 

1. “Business as usual” is overtaken by post-merger chaos. 

Combining companies is no easy feat, and both companies will be distracted by the fallout for 18 months or so. They’ll be dealing with duplicate systems for core functions like billing and customer support and trying to migrate and merge records. Details about your payment arrangements or support contracts could be marooned in an obsolete system. And with duplicate operations, there’s usually a “who’s on first” phase in which customer-facing employees from both companies aren’t sure how to engage with clients. In that vacuum, end-users and their in-house IT staff may waste a lot of time trying to get their software to work the way it once did, to no avail. They might resort to engaging the vendor’s professional services team to get (paid) help resolving the mess created by the acquisition. That’s a lot of disruption and expense. Adding insult to injury, Harvard Business Review reports that “between 70 and 90 percent of acquisitions fail”* in the end anyway. Ouch. 

2. Some acquiring companies aim to squash competition for their flagship product, which means your software might become obsolete. 

Naturally, when two companies are combined, there’s a lot of overlap. For example, there are two brand names, two website domains, and potentially multiple, similar software offerings. Deciding which of these duplicate assets to keep, merge, or sunset can create friction and churn among staff. Meanwhile, clients await news on whether the software they rely on will be supported tomorrow. That’s because some acquiring companies aim to sunset similar products and transition those users to the flagship product. Other companies plan to merge the best elements of two similar products into one new version. That is an ambitious goal that is rarely achieved. More on that later. 

3. Few acquiring companies invest enough resources in integration and transition processes. 

Even when the two companies have similar visions and cultures, training the workforce on the go-forward strategy, the combined offerings, and how to respond when issues arise is a huge struggle. Given the pressure to quickly demonstrate ROI after the acquisition, and the inconvenience of distributed workforces, transition teams rely more on marketing-driven talking points than on actual training. As a result, well-meaning staff may make promises that align with marketing but are not actually feasible (or even tested). For example, a client might be told “Exciting news! Your ABC software will now work seamlessly with all these other products in our portfolio, giving you a more comprehensive EHS solution.” That sure does sound good, but unrelated legacy products don’t automagically work together.    

4. It is unlikely the combined technologies will ever be compatible, let alone integrated. 

Even for the software companies that beat Harvard’s odds and successfully integrate operations, their technical foundations won’t coalesce, and they won’t deliver a truly integrated product. Their respective software products were likely built with different architectures, different programming languages, different security protocols, different calculation engines, and different third-party libraries. That’s a lot of differences to overcome. Placing this patchwork of fragmented technology behind a snazzy new “single pane of glass” merely gives the illusion of an integrated platform. They remain distinct, siloed products.  

Some dev teams will take steps to merge the two companies’ platforms, but ultimately accept that their fundamental differences (architecture, programming language, security, etc.) are too significant. The semi-merged platform will likely be plagued by instability, scalability, and performance issues, thus lighting the fuse for client churn.  

5. The product roadmap you bought into is suddenly a dead end. 

The acquired company’s development priorities usually go out the window, which contributes to staff churn. The remaining programmers might not have the knowledge to support the acquired company’s code. Even worse, they might not possess critical legacy knowledge about which “Jenga” pieces of code can be moved without making the whole thing crash. The bug fixes and roadmap that had been promised may never materialize because the company is focused on expansion rather than delivery. When they realize they cannot adequately integrate and scale the technology to appease their grumbling user base, they may turn their attention to new logos rather than yours. In this situation, acquired products may be placed on “EOL” (End of Life) and its users are expected to willingly transition to a product they didn’t choose. 

6. The people you really like from the company may be short timers. 

Working through a corporate acquisition is not fun – even for the staff at the buying company. Those being acquired struggle to get behind “the other guy’s” vision and people from both companies fear staff redundancy. The prospect of “reorgs” consumes staff and impedes their ability to focus on business as usual. Truly innovative software developers abandon ship in search of fertile ground at another independent company. Surviving customer-facing employees wind up fielding client complaints and shouldering the burden of picking up the pieces. They tend to become disillusioned and often leave the merged company. As a result, end-users may lose the wonderful support personnel and account managers that made them love the company in the first place.  

In the end, the company, product, and people you originally invested in are replaced by something else entirely. 

Which is why so many companies choose Locus Technologies, independently owned and operated since 1997. 

We refuse to put our clients in that situation. Since our founding, Locus has ended every corporate acquisition discussion upon learning that the other company lacked a scalable model. In our view, real market leadership is defined by innovation, agility, responsiveness, resilience, and scalability – not the prettiest lipstick.  

Like the “unadulterated technology” mentioned above, Locus invested in multitenant architecture on day one. This guarantees scalability, flexibility, and seamless updates across all clients, every day, no matter how many new applications we introduce into our portfolio. Plus, this stability enables infinite configuration options from our clients: if they can dream it, Locus can do it – without breaking. By fiercely protecting our spirit of innovation and agility on a scalable platform, we’ve had the good fortune to retain great talent, attract the best minds from elite universities, and create happy clients year after year after year…

*Source: Don’t Make This Common M&A Mistake, Harvard Business Review