How To Make An Acquisition Successful?

A year ago, we sold LiveRamp, a 50-person startup, to Acxiom, a 5,000-person goliath of the marketing world.

Of course, I was ecstatic: we had a tremendous outcome for our team and our investors, as well as the ultimate validation for our product (which every entrepreneur seeks).

But alongside the celebrations, I also had a deep sense of loss. I assumed it was the end of what made LiveRamp special. Like most startups being acquired by big companies, I assumed that a large bureaucracy would crush our culture; we’d lose our agility and focus; our team would lose its drive and ultimately leave; and our products would become stale.

That outcome seems the inevitable fate of most startup exits. Most entrepreneurs are resigned to their startup losing its uniqueness, so they accept handcuffs, stay for a year or two and then move on and try to repeat the cycle. Meanwhile, acquirers rarely get the value they expect from the acquisition as they lose the magic that made the startup successful in the first place.

During most acquisitions, the acquirer mistakenly tries to find a middle ground. Indecisive leaders and consulting firms steer towards the middle to appease the many stakeholders in a company.

Over the last year, I was proven wrong on all my assumptions. And I learned that there are ways to avoid the problems associated with integrating into a larger company. Typically, most integrations fail because of compromise.

Truly successful integrations occur at the extremes under two vastly different models: subsuming an acquired company or “ring-fencing” it.

The Subsume Model

In this paradigm, the paramount objective is to fully integrate the company’s assets into the acquirer’s portfolio. On day 1, the branding changes to the acquirer’s logo, new HR policies are instituted, the team is reorganized into the broader organization, and you move your corporate headquarters. This approach is phenomenally successful at bringing together assets, but requires exceptional execution and change management capabilities as it dramatically changes the newly-acquired companies. A prime example of a company that utilizes this model is Oracle, which thrives on major acquisitions and radical integrations.

The Ring-Fence Model

For this approach, the primary goal is to not break the startup. The culture is strong, the business has solid momentum, and the team is great. Let it roll, and find occasional synergies you can support. As an extreme example, Berkshire Hathaway is famous for not intervening at all in the strategies or operations of most companies it buys, and only has 25 people in “Corporate” to oversee the operations across its whole portfolio.

Either of these two extremes can be very successful. And there are good arguments for both sides. Anywhere in the middle is destined to fail.

During most acquisitions, the acquirer mistakenly tries to find a middle ground.  Indecisive leaders and consulting firms steer towards the middle to appease the many stakeholders in a company.

This is a mistake. Once the integration floodgates open, the number of micro-decisions that need to be made overwhelm the small number of startup employees, causing them either to not share their input or become consumed by all-day integration meetings. Decision after decision becomes suboptimal as vested interests in the big company prevail.

Startup cultures are fragile, and before you realize what has happened, the magic is lost and the startup is broken – but without the benefits of the pure Subsume Model.

How to Make the Ring-fence Model Successful

If you go with the Subsume Model, your playbook is well defined; the outcome boils down to your execution chops. When you choose the ring-fence model your outcome depends on your ability to cross-pollinate between organizations; your flexibility; your ability to communicate the vision for the future; and a commitment to continue growing your business.

  • Cross-pollinate

Choose a small number of superstars from the acquirer that can join the startup’s team (these should all be great culture fits and this should not increase the startup’s headcount by more than 10 percent). Choose one to two superstars from the startup and place them in a senior role at the acquirer. Many strategic synergies will come from this cross-pollination.

  • Be Flexible

Be open to change, but don’t compromise on the details. As the acquiree, are you changing your expense policy? Are you switching everyone from Mac to PC? It’s okay to make changes – but don’t do it out of compromise; do it only if you’re persuaded on the merits of the new approach. Refusing to compromise will be draining, but employees will notice the small things and take them as a barometer of where things are going (and as a signal for how they should behave).

  • Communicate

Tell everyone the vision and rationale of the integration, and constantly reinforce it. Make sure your team knows that you are intent on the Ringfence Model, and that part of their job is to stand up for the culture (and that they should also care about getting the details right). And employees of the acquirer should also be told why this is happening, so they can adapt to the integration strategy and not develop ill-will toward the acquired company.

  • Keep Growing

Don’t relent on hiring. Keep hiring A-players and great cultural fits. Your pitch to new employees will change slightly, but don’t let it change who you hire. People are the foundation of culture.

If you are true to the model you choose, your acquisition can be wildly successful and satisfying. Today, LiveRamp is growing faster than it ever did pre-acquisition, and its culture continues to be as special as it was prior to the change in ownership.

I could not have foreseen it a year ago, but Acxiom’s commitment to the Ring-fence playbook made the acquisition stronger than I ever imagined possible. In the end, no one had to compromise.

 

Source: http://techcrunch.com/2015/08/04/how-to-make-an-acquisition-successful/

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