After the Acquisition: Reflections for founders from someone who’s been there

LearningsOct 6, 2022

Adobe recently snatched up Figma for $20B. Everyone has been talking about the deal.

Why did they sell? Why did Adobe buy? What happens next? Does this put Notion in play? Is Canva worth $40B?

These are fascinating and relevant questions, but with each story I read, I find myself thinking about what happens after a merger or acquisition. The integration of two businesses is just plain hard. And it can mean the difference between exponential growth or a slumping burden over several years.

At Slack, I saw first hand the preparation, process, and planning that goes into this (typically) multi-year integration process.

Why M&A, and why now?

The general consensus right now is that the startup financing environment is changing and things are likely to get worse before they get better. Valuations are returning back to the mean and we’re seeing more extensions, flat or down rounds, and structure within those rounds that is less favorable to founders than it has been for the past decade. With the funding market tightening up, we’re going to see more M&A in the next 6–18 months. Some companies who raised large rounds are having difficulty growing into their valuations and seeing line of sight for their next round of funding. And the IPO window is clearly shut.

"It’s been 240 days and counting since a large tech IPO — the longest drought in more than 20 years." — Neal Freyman, Morning Brew

Founders will be more open to selling instead of counting on future easy financing (see Figma 🙂) and buyers are seeing more reasonable prices.

There’s been a lot of talk about the potential rise of M&A in this market and what buyers and sellers should think about before committing to a deal. But talking to many founders who’ve sold in the past, they consistently mention one key thing many overlook: integration.

There are two parts of any deal that should be considered together.

  • The deal itself. This can often be broken down into or centered around: team, technology, and market. Both today and future potential. This is what gets the headlines. It’s easy to understand.

  • What happens after the deal. Are you planning to integrate or operate as separate entities? What’s in the deal model and how do you ensure success in the short-term and long-term? The reality of integration is easily overlooked and actually a key factor in the success of a deal.

If you’re thinking about selling or buying, I’m sure you are thinking through all the deal scenarios. Multiple offers, public or private, cash vs. equity, strategy alignment.

I have seen the hard yards that come with integration. I believe these should be considered as part of the original evaluation of any deal.

First, integration has major benefits. With integration, acquisitions can leverage synergies with the acquirer and companies typically experience less churn. The products work better together. Sales teams leverage each other’s relationships to accelerate growth. This is the dream where 1+1 = 3. The alternative is that you might find yourself slowly navigating two go-to-market organizations and trying to ensure consistent messaging.

Integration involves bringing a whole new company — with their own culture, norms, systems, teams, processes, etc. — within your company while trying to maintain the team, technology, or growth you originally acquired them for.

Large companies have teams dedicated solely to integration. When Salesforce acquired Slack, I met dozens from their integration team. People focused on integrating sales, IT, HR and a host of other business operations. They have teams of teams working on a deal model and plan for integration. On our side, we had to create our own integration team, made up primarily of people like me — experts in their area of the business — and passionate about helping the deal succeed, but not necessarily experts in integrating two sizable companies successfully nor individuals with excess capacity to lean into a new sizable remit.

How do you do it?

Many of us don’t have the benefit of dedicated teams on either side of a transaction. So here are 3 keys for how to think about M&A integration and come up with a plan.

1) Set goals, make a plan, and focus on the people. Bill Schwidder, VP of Corporate Development at Salesforce recommends breaking down your integration plan into a few pillars:

  • Trust & alignment: Build trust. Set expectations that there won’t always be agreement but there will always be transparency.*

  • Growth & GTM: Maximize performance. Ensure you’re engaging with customers as one business.

  • Employee engagement & retention: Inspire and motivate to maximize retention. Know that each employee will have their own unique journey of adoption that depends on their seniority and function.

  • Operational excellence: merge systems and maintain compliance.

Setting an operating plan will take the ambiguity out from both sides. It’ll help paint a north star for both teams. Ideally it’ll span customer experience, product, go-to-market, business operators, and employee experience.

When it comes to people, remember that a startup is filled with people who are absolutely passionate about building and/or selling something. They tend to work fast and be empowered to make decisions. Even the most agile acquirer likely has more formal processes that might be seen as bureaucracy to those not used to it. Much of it just comes with the territory of a bigger business. But it can be hard to get people fired up over the important things that come with integration — like maintaining and transitioning.

Think about the cultural makeup of the two businesses, especially when it comes to diversity. When the teams are gathered for the inevitable motivational and educational sessions, will the acquired team see people who look like them represented in the new business? Will they feel like they fit in?

2) Measure, measure, measure. If you have the ability, even before the full integration is under way, start setting goals and KPIs that line up and measure your progress. What’s going well? What’s not going well? You should continue to monitor at a regular cadence.

  • Business performance: pipeline coverage, selling capacity, bookings, revenue, attrition

  • Integration progress: product delivery, security, employee productivity, customer experience

  • Employee retention: total employee retention, founder and key leader retention, sentiment

The top priority for most deals will likely be around ensuring the teams can take advantage of the GTM momentum and maintain it beyond any short-term bonuses linked to cross-selling or upselling the newly acquired product. How can you genuinely integrate the sales teams so that they can see the upside — both short term and long term — of selling the new product?

3) Report up and across. Be transparent from the onset. Share out the high-level plan and the KPIs and then continue to update both organizations. And don’t forget to elevate these conversations to your board. M&A belongs at the highest levels of company strategy and any reporting and discussion should be shared.

Communication with the broader team needs to be limited and can sometimes be dictated by legal requirements. But wherever possible, it will serve you well to start to get the team who will ultimately be working together within a newly combined org sooner rather than later.

If you’re considering a sale, it’ll pay to ensure you have the capacity on both sides with clear owners who will ensure execution and success. If that’s not readily apparent, there are reasons to be wary.