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Mergers & Acquisitions: What Happens When the Company Whose HR Software You Just Purchased Gets Acquired?

Written By: Sherry Fox
Published On: April 19 2011

“Software companies come and go but software products last forever.” − Anonymous

Recent Mergers and Acquisitions in Human Resources
It’s no secret that 2010 saw its share of mergers and acquisitions (M&A), especially in the area of human resources (HR), human capital management (HCM), and related software systems. Here are a few deals you may have recently heard of:

  • ADP acquired Workscape
  • Authoria merged with Peopleclick
  • Kenexa elevated compensation capabilities with Salary.com
  • Lawson acquired Enwisen
  • Mercer acquired ORC Worldwide
  • StepStone Solutions acquired MrTed
  • SuccessFactors acquired Inform and Cube Tree
  • SumTotal acquired Softscape and GeoLearning
  • Taleo acquired Learn.com
  • Workstream acquired Incentives Advisors, LLC

But what happens if your organization has just purchased software from one of the companies that has been acquired? Before jumping the gun and seeking your company’s legal counsel, let’s take a look at the perspective of the acquiring company.


What the Acquiring Company Wants You to Believe: Consolidation Provides a Wider Breadth of Functionality

So why have so many vendors chosen to acquire solutions rather than develop these solutions? Many larger software vendors believe that most HR professionals want to have an integrated approach from a single vendor rather than to purchase point solutions from a variety of different vendors. More often than not—as we’ve seen with recent M&A activity—larger vendors often purchase a vendor’s solution that provides the missing piece of the puzzle (the software functionality) to round out their own solution’s “incomplete” offerings. 

In addition, many companies cannot continue to grow and expand to next stage of development without substantial capital investment. These vendors often make a strategic move to acquire an existing vendor (and its solutions). In fact, M&A-type deals have practically become a necessity for organizations to compete in a global business environment. M&As are often seen as a means to maintain and strengthen the acquiring company’s position in the marketplace, as well as a relatively quick way for the company to expand into new markets while incorporating new technologies. Yet the success of such deals is by no means guaranteed.


The Unfortunate Truth
On the contrary, most M&As fail to meet their objectives. Some of these objectives include accelerating growth, cutting costs, or increasing market share. M&As represent a high-risk strategy for business growth, often failing for a number of reasons, including the vendor’s inability to properly coordinate distribution networks.

Vendors that acquire software systems typically begin offering a wider range of products and services to their customers and broadening their geographic reach. Accomplishing these implementation objectives, however, depends on the smooth and effective integration—which may not always go as planned. Thus, these firms often face expensive systems reconciliation, as well as experience conflicts within the new combined management structure.

Now that you have some insight into M&As from the software vendor’s perspective, let’s look at your organization’s perspective.


What You Need to Know: Buyer Beware

So here you are: you have recently purchased an HR solution (or are in the final stages of negotiation), and the software vendor has just been acquired by a larger vendor. Worse yet, the product has been acquired by an unknown buyer. Do you have anything to worry about, or can things only get better?

You might suffer a few sleepless nights with uncertainty, especially if you were a primary decision maker in negotiating the software purchase with the vendor.

Although vendors may promise to deliver a newly integrated or a rewritten product line with the software merger, many do not come through in the end. It’s easy for a software vendor to create a vision for a new product line, but it’s considerably harder to deliver it—within a short period of time. All too often, customers are put aside as the merging organizations wrestle with operational issues.

New customers purchasing a product when an M&A is announced may find their product obsolete by the time the implementation is completed. In addition, different products may merge, eliminating the purchased product altogether or modifying it substantially—and leaving the customer without the necessary software.

To the merging organizations, the initial shock of an M&A is often followed by a series of aftershocks, including the unexpected defection of key people and a decline in employee productivity and morale. So what does this mean to you? It could mean that the software vendor’s key people—those needed to support your implementation, among other things—may not be as knowledgeable about the product lines (which may be now somewhat blurred).

Contracts and Licensing
Licensing a product that gets transferred to an unknown buyer also comes with its share of challenges. When it comes to licenses, customers should be aware that the new owners may have a different timeline for delivering enhancements, upgrades, or products than that communicated by the previous owners. This would be a good time for customers to dig out that contract and see what leverage they have—if any.


Do Your Homework: Talk to Your Software Vendor about Your Concerns
Though the success and failure rates of M&As vary by the calculation method used (i.e., financial metrics, market share growth, etc.), research indicates that on average, 60 to 80 percent of all mergers, acquisitions, and other corporate transformations fail. That’s about two out of every three deals. Given this high number, it’s important for organizations purchasing software to ask the right questions and get a clear picture of the future of their new system.

Although you have no say in how your software vendor handles an M&A-type deal, you have the right to ask questions. Here are a few questions you may want to start with.

Contract pre-negotiation:

  1. How will pricing be affected?
  2. Will I be forced to implement other applications or add-ons, along with the one I initially purchased?
  3. If products are going to be integrated, what is the strategy for migrating customers to the new platform and at what cost, if any?

Contract post-negotiation:

  1. Who will be in charge of the implementation plan?
  2. What is the integration strategy for products that have overlapping functionality?


Although the vast majority of M&As fail, some companies go on to be very successful post-M&A. As a company looking to purchase a solution from a software vendor involved in a merger or acquisition, be sure you get as much information about the merging companies as you can before making any purchasing decisions. If you’re not sure about what your rights are, now’s the time to seek legal counsel.


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