Today, mergers and acquisitions are a way of life. Whether it is a business that grew successfully or one that is past its prime, acquisitions are a way for service providers to grow inorganically. Mergers and acquisitions can happen to a professional service provider, like a consulting firm, as well as a software service provider, like an HR technology vendor. In almost all cases, it is touted as a good thing, the coming together of two organizations now stronger together, and more marketing hype. However, that reality is rarely ever achieved, and disruption is far more likely. As a customer, you have no control over the fate of your provider; however, you do have control over how you react when your provider has been acquired. For many, it is a “fight or flight” response; others will take a “wait and see” approach.
In HRchitect’s 26 years as a privately owned consulting firm in the HCM technology industry, we have observed numerous acquisitions of competing consulting firms and software vendors. We’ve drawn on these observations to share insight and action plans to consider if your organization’s service or software provider has recently been acquired.
Considerations when your professional service provider has been acquired
When an acquisition affects your professional service provider, the actions needed may be more immediate than when a software provider is acquired. That is because you have purchased resources in the form of a consultant’s expertise and must ensure continuity, if possible. If it is impossible to ensure continuity, the speed at which you can get a new provider will directly correlate to the disruption you may experience.
Conflict of interest
Depending on who acquired your provider and what services you are receiving, there may be a conflict of interest. For example, many Accounting / Audit firms are acquiring professional services firms. Suppose your professional service firm supports your Payroll applications and processing and was acquired by your accounting firm or auditor. In that case, there will be a conflict of interest, and you must act immediately to procure a new service provider.
The urgency here is a matter of compliance. Find a provider that has a history of independence and stability in leadership. While there is no guarantee they will not be acquired or go out of business, continued solid leadership within a professional services firm indicates stability in the services offered and the organization’s overall direction.
The people and their expertise are often the reason why a service firm is purchased. However, that does not mean the consultant you have been receiving services from will remain in place. While the consultants supporting your account may remain after the acquisition, they may get reassigned to other accounts that the acquirer deems more critical or urgent.
Additionally, there is often an uptick in voluntary turnover as the acquirer has different cultures, programs, and even pay practices that may not be desirable to your service team.
When this happens (and it happens often), you have little recourse if the firm can provide a similarly qualified resource. However, if they do not have one available, you must look for a new provider and review your existing contracts simultaneously.
Know your terms and conditions. You must understand what services and service levels you have contracted for. Most organizations will review some but not all Master Service Agreements (MSA) and the corresponding Statement of Work (SOW) during the acquisition.
Most MSAs or SOWs will not name the resource assigned to you as it is very difficult to manage, given each instance of turnover would require a change order. However, most of them describe the qualifications of the resource and the services. Do your contracts have remediation clauses, including termination or refunds (if pre-paid), if your service provider can no longer provide a similarly qualified resource? Are there any Service Level Agreements (SLA) tied to the remediation of termination clauses?
Understanding all terms and conditions of your MSA and all SOWs puts you in charge of making the right decisions when deciding what to do with your existing service contract.
Considerations when your software service provider has been acquired
Do you need to change software platforms?
When a software application provider is acquired, it is usually for either the customer base or the technology. If your provider was acquired for the customer base, you will, at some time in the future, be forced to change platforms. In this scenario, the end game for the acquiring organization is to retire the acquired application platform and move all users to its platform, increasing its user base.
If your software service provider was acquired for the technology, you will have many upgrades and enhancements over time and usually will not have to change platforms. However, this may also come with cost increases.
The decision to change software providers should be driven more by the value of the enhancements to your organization relative to cost. In some instances, you might get a great deal on better software!
Prepare for service disruptions
It is common for the professional services team of the acquired organization to experience layoffs or voluntarily quit, as the new culture is not where they want to work.
Even without professional services team disruptions, the two organizations will need to merge processes. As a result, there will be challenges in the new organization’s billing, sales, and other core functions that may be duplicated in the new organizational entity.
These infrastructure changes do not necessarily mean you need to find another provider. However, be sure to understand these changes and have a contingency plan in place should service take a bit longer upon the initial change. If, after a period of time (6 months minimum), the service does not improve, it may be time to consider a provider change.
Review your Contracts
Most contracts protect the software vendor should they get acquired in that it transfers the contract to that new entity. However, these contracts typically do not cover the customer in the case of an acquisition.
Review your renewal and termination clauses. Should the acquired organization stop delivering service, you may have a legal way out before your contract expires.
The renewal terms will almost always carry over upon acquisition. Make sure you know when the renewal period is applied. Use this as your opportunity to re-negotiate based on the new reality of the situation.
About the Author: Jacqueline Kuhn
Jacqueline is the EVP of HCM Strategic Consulting Services at HRchitect. She oversees the HCM strategic consulting group, encompassing HRchitect’s HCM systems strategic planning, system evaluation & selection, and change management practices. Jacqueline spends much of her time with HCM vendors being briefed on their technology offerings, ensuring that we provide the most current information to our clients who are looking for a new solution. Jacqueline enjoys working with organizations to impact their HCM strategies through the utilization of technology.
Learn more about Jacqueline here: https://www.linkedin.com/in/jacquelinekuhn/