What does it take to make sure an acquisition deal runs smoothly, from conception through integration?
Bryan Morris, CFO of Demandbase, a San Francisco-based company that provides an account-based digital marketing and sales platform, has insights. He spoke with StrategicCFO360 about when M&A evaluations are “a sanity check,” the M&A “fallacy” that size drives workload and who should help manage your post-acquisition integration.
Your company has acquired three companies in the last 18 months. As CFO, how do you approach vetting new investments in coordination with the rest of your C-Suite?
Whenever we look to acquire a new company, unless you’re looking at an “acqui-hire,” we start by ensuring the product is a strong fit. So, for each of our three acquisitions, we had a focused team of product managers and leaders evaluate the technology and verify that it would be valuable for our customer base. If we were to build it ourselves, how long would it take us to do that? Often, M&A evaluations can be a sanity check against development timelines. Sometimes, it’s just more expedient and smarter to buy product extensions.
In our recent deals, once we completed the product evaluation, the executive team and I took a good, hard look at each business we were considering acquiring. We reviewed the customers and revenue and discussed how the customer base might be affected once the acquisition took place. We also nailed down our strategy, which isn’t always the same in each acquisition. In some cases, our goal was to get the new product integrated with our existing product as quickly as possible so our core platform would become more valuable, while other times we knew that we wanted to continue to sell the product largely as is, with some light rebranding and refining.
What we really sought to have early on was a unified conviction about how our go-to-market and product suite would change post-acquisition. So all of our discussions and evaluations centered on that.
With such limited visibility into how Covid-19 would affect the world in 2021, how did you make the necessary calculations about where to best invest?
This was challenging, to say the least. Our first acquisition was in Q2 of 2020, and our second two were a year later in Q2 of 2021. Although all three took place during the pandemic, the circumstances were drastically different from one year to the next.
In 2020, we had no visibility into how long the decision-making paralysis we were seeing in the B2B world was going to last. So we had to take risks as we calculated where we’d invest, in the hopes that our projections would ultimately pan out.
In mid-year 2020, we started to see a shift in customer behavior. It became clear rather quickly that digital transformation was an ascending strategic initiative. We still didn’t have concrete answers or clear visibility, but we could sense that businesses were increasingly in need of a strong value proposition that helped them execute a modern go-to-market. Specifically, they needed help capturing signals around how customers were engaging with them online since online was suddenly all they had. This was exactly where our product excelled, so the industry shift inspired us to get bolder in executing on our product vision.
How does the M&A process impact the finance team?
There’s a fallacy in M&A that the size of an acquisition drives workload. Sometimes, smaller acquisitions can require just as much work as medium acquisitions, at least through deal completion. There’s so much that goes into it, including structuring and diligence, all of which becomes a major—and distracting—project for a subset of the finance team. Of course, if the acquisition is a smart business move, these investments are incredibly worthwhile. But while you’re going through it, it definitely adds a lot to your finance team’s plates.
What advice do you have for CFOs to be successful with M&A?
One lesson learned through our acquisitions is that it’s immensely helpful to have someone on the other side, post-acquisition, who can project manage the integration. It’s great if you can have a dedicated corporate development team, but if not, someone should be the point program manager post-acquisition to help tie up loose ends around what’s happening. For example, acquired employees should feel just as special as new employees on day one. Having someone in a dedicated role to prioritize communication with them and welcome them into the family can start this new chapter for the acquired employees off on the right foot.
From a financial perspective, I highly recommend looping in a strong financial planning and analysis partner who can work with you closely to model your new business. This person should be thoughtful about scenarios that can happen post-acquisition and prepare you, the executive team, and the board for these outcomes. Also, they can collaborate with you to define success criteria up front. Be very clear about how you’ll define success six, nine or more months out from the acquisition—whether in revenue or P&L, or customer satisfaction metrics—so you can check in and track your efficacy. Finally, make sure your service providers are able to give you what you need. If you don’t feel like you’re getting the best external counsel to execute on your M&A, make a change sooner than later. Evaluate your service provider talent and capabilities just as you would your own team.