The IT-factor of successful M&As

There’s just as much room for error in an M&A, from culture clashes to integration pains, as there are versions of success: expanded market reach, new features and functionality, one less competitor in a cutthroat sector. But no matter their final shape, successful M&As tend to be alike in a few key ways:

• Educated valuation
• Smooth integration
• Complementary culture

Look past the never-ending juicy bits of Elon Musk’s acquisition of Twitter and remember that despite the chaos and the drama, it is still a transaction with financial obligations — one in which Musk is gambling that, with his investment and guidance, the platform’s value in the long term will far exceed its expensive pre-acquisition price tag.

The benefits of any deal hinge on a careful valuation of the acquired company — too high and you’ll be chasing performance targets out of reach from day one. A transparent, honest diligence process allows for the kind of honest valuation that sets transactions up for success.

How quickly can your new team deliver value post-integration? The answer to that will play a major role in determining how successful your M&A is. As you well know, integration is about more than employees sharing their calendars with new employees; it’s also about how two companies with distinct software and IT will combine their workflows and operate in tandem. Not just the tech each company develops, but the programs and software that each company runs on.

The early involvement of IT leadership in the transaction process is crucial to a deal’s success, per a study conducted by Deloitte. Late involvement increases the risk of missed synergies and technology costs — and that’s to no one’s advantage.

A company’s technology architecture can also determine how smooth an integration goes. For instance, cloud-based applications are a huge enabler of successful M&As because they allow for faster integrations and application rationalizations when compared to on-premise legacy systems.

Company culture always feels a bit intangible, but a cultural misalignment between transaction parties can lead to IT headaches and a painful vacuum of engineering talent.

Just look at Adobe’s announcement of its $20B Figma acquisition, which made headlines in 2022, cratered its shares, and sparked meme-fueled skepticism from Figma’s user base. What gives? Figma had positioned itself as the anti-Adobe, and its community had grown around that countercultural image. Its acquisition by the software giant, then, looked a little like when your punk cousin got her anarchy tattoo laser-removed and started working in finance.

It’s still far too early to say how this deal will play out, but it’s illustrative: Cultural misalignment between the two parties of the transaction leaves a number of exposures, including on the technical side. It could result in a loss of talent as employees decide en masse that the new company culture isn’t for them. Ideally, the cultures should harmonize, and initial friction should be smoothed out as quickly as possible.

Successful M&As are enabled by the early involvement of a company’s technology leadership, but that doesn’t mean deals are made or broken based on the quality of their tech stacks. In fact, it can be tempting for technology leaders to treat the transaction process, especially due diligence — when books are verified, tech is audited, and business processes are evaluated to ensure an integration doesn’t come with any unexpected surprises — like it’s a full code review.

But that’s not the case. With typical diligence lasting a matter of weeks, such thorough audits aren’t possible or even a productive use of limited time.

Nevertheless, your company’s CTO, Director of Engineering, and other technology leadership will play a major role in ensuring a smooth diligence process. It helps to reiterate here what the goal of diligence is: gaining a comprehensive understanding of exactly what kind of technology and business your company is in order to make clear-eyed business decisions.

What is it not? A test for immaculate code. “Clean, well-written code is nice,” says Dave Hecker, Vention CTO, “but during due diligence it’s more important to show overall sensibility, transparency, and evidence of good decision-making. Technical debt is expected, so long as there’s good reason for it.”

A full code review may not be possible, but you can still ensure the other party gains a full understanding of your company’s technology and how that technology might perform after integration — and what technical debt is being taken on.

The expectation of diligence isn’t that code will have no errors. In fact, even solutions that are held together with outdated legacy systems and loads of technical debt aren’t dealbreakers. So when it comes to ensuring success during M&A diligence, be proactive and transparent: Make sure you know both where your company’s technology stack succeeds and where it fails; provide documentation of your DevOps, sprint structures, and roadmaps; and provide the other party with a few key technical SMEs across your company that they can talk to for more information.

Don’t sweat the small stuff. Transactions are never seamless, and a certain amount of technical debt and infrastructure mismatches are to be expected. Those aren’t anything to be concerned about during the deal process.

What will be cause for concern, however, are red flags raised about your business itself: clashing personalities in leadership, risks of large-scale talent attrition, trademark or copyright issues, and security or compliance concerns.

Notice the pattern here. It’s not so much problems with the technology (which are headaches, but fixable) but more existential concerns that aren’t as easy to solve as improving some documentation or refining DevOps processes. Clashing personalities in leadership might wreak havoc post-integration, when those personalities are incorporated into your own leadership structure.

While some amount of attrition is expected in every merger and acquisition, the loss of key personnel and institutional knowledge too early can be an expensive problem with long-term effects. And IP legal entanglements can jeopardize entire transactions.

How can you stay ahead of those concerns? According to Dave, provide documentation of “all third-party components with crystal clear details about ownership and rights.”

In short, technology leadership during transactions should present clear roadmaps for technology fixes, and a deep knowledge of where and how business could be improved. Any skeletons that could come out of the closet inevitably will once diligence is underway.