People Soft. Mergers and Acquisitions at NAB 2015 and beyond

Posted by russell on Jul 10, 2015 in news

Hope you enjoyed last months feature Ghosts in the Machine, Broadcast Innovation’s soft-rock-defined M&A review. In part 2 we focus on the greatest intangible of all in successful M&A, the value of people. Regardless of company size or funding type, it’s the people that innovate and deliver. Working together they market, sell and support a company’s value proposition.

It’s the subject that comes up time and again in discussions about M & A. With individual behaviour often triggered by perceived threat or opportunity, assessing the role and the on going value of key individuals and teams causes many misunderstandings.

I spoke with Ben Davenport director of marketing at Dalet and an M&A veteran from both AmberFin and Omneon  “As an investor or shareholder, gauging the success of a merger or acquisition could be fairly black and white – largely be deduced over a defined period of time from the (merged) companies quarterly or annual financial statements. For customers, the benefits of one vendor acquiring another can be much less obvious. It’s important to remember, especially in such an innovative industry as ours, that companies are actually about people. It’s people that have the courage to collaborate, innovate and create. Sure, you buy a product and might compare that like-for-like with other products, but later on you actually buy from a person or group. Personal relationships are often your direct connection to a brand and crucially where you have placed your loyalty and trust.”

Once those key people start to move or are moved around then trust has to move too. That’s a difficult transition, impossible to predict. The long-term face-to-face dialogue which helps forge that trust with customers is hard won. Ask any real sales professional. And it’s great sales people that often suffer most during a change of owner, if they judge that their promises and customer commitments might be affected by the new regime.

Keith Nicholas Head of Operations for Digital Media Services at BBC Studios and Post Production gives a customers view “Acquisitions can cause unintended uncertainty for customers and while those in the Boardroom understand their rationale behind bringing companies together this is quite often misunderstood by those that interface directly with the clients, their concern is often more about their future within the merged organisation. Whilst the press releases may make all the right noises, the discussion in the pub may be more confusing. So it’s important that the new structure is made as clear as possible as early as possible, time is of the essence.”

So how do potential investors successfully mitigate this, how do they get beyond the spreadsheets and the roadmaps? It’s not uncommon during an acquisition for there to be a target list.  Specific individuals, who judged to be of the highest value, may be obliged to stay with the merged company for a prescribed length of time post-acquisition. Their loyalty may be incentivised; so called “golden handcuffs”. There can also be a longer list of those who are protected from “combined efficiency” restructuring targets later on too. Maybe they get boxing gloves?

Ben Davenport again “Smart integrations try to understand the value of individuals and the intangible values they bring. Acquisitions often fail to achieve enough growth when there is inaccurate perception of these intangible values or inappropriate leadership.”

Timing is everything

Havard Myklebust CTO at Norwegian Commercial Broadcaster and Media House TV 2 gives his point of view. “For vendors of strategic technology it can affect their short-term business negatively. In many cases it can be a double negative. It casts doubt over any urgent choices. A vendor that you may have been investigating successfully for many months can suddenly look a like a less clear choice. Why are they being acquired? The local sales team cannot usually offer the reassurance you need.  The next thing you know is that you receive a delegation from the new management promising everything will stay the same or, that everything will change. Only one of those statements may actually be helpful. Or the delegation comes fishing for answers about your requirements and the market potential, this can really set alarm bells ringing. Customers have much less time and resources to adapt the consequences of an acquisition than investors realise. Often it causes a loss of interest”

Indeed I have seen many occasions where in addition to the unintended consequences of poor customer communication, the competition takes immediate clear strategic action to benefit from an acquisition or rumour in the short term. Extra stamina is required to get growth going again. Even if that is present in the target sales team it my take longer for the people at resellers or systems integrators to regain their impetus and direction.

Joachim Bergman, Head of Service Area Playout and Media Management at Ericsson Broadcast and Media Services adds, “In recent projects where vendors have been acquired the results have been mixed and comparatively small issues have caused tangible performance issues. Sometimes problems in support and spares and larger issues related to premature or rapid decisions on product rationalization without proper communication both internally and to customers.

For us, there is a need for transparent and rapid communication of roadmaps and changes in order for us to mitigate any potential negative consequences. Hiding or waiting to communicate bad news is never a good option and that has sometimes happened. It is better for us to have the difficult conversations upfront with a constructive dialogue about transition and “sunset” of products and services”

The customers buying cycle and expectations, especially with longer-term technology investments such as mam, newsrooms systems and automation that have lengthy implementations, often conflict directly with the timescale of acquisition. And the product strategy post acquisition. People are important here too, as many situations are better dealt with face to face. 

Where’s the edge?

Investors often comment to me that financially the broadcast and media technology industry is difficult to size. Appearing both too big and too small at the same time. The edges are hard to find. So many products appear unfinished too.

For investors, and customers of course, it’s sometimes challenging to ascertain exactly how mature the target’s emerging new technologies and products really are. Early adopter users are looking for the same thing as more adventurous investors, something with suitable potential that is currently undervalued. In other words the right marginal area for public or private investment as explained by Josh Stinehour in last months issue.

Optimal success comes when products and solutions are ready enough. Or ‘out of the box” as specified in many an RFP. This takes real discipline in product management and in selling to control commitments. And perhaps “the box” might be a strange shape; not square. Maybe the cardboard is a bit soggy.

By way of examples, in my experience smart appliance vendors for example Axon, Evertz, Snell and Ross are better at this. Telestream and Elemental impress too. However, many MAM, automation and newsroom control vendors have a more difficult time. Their products are more complex solutions, with multiple third-party integrations and suffer where clients do not effectively communicating all of their requirements. I use these to illustrate where I have found investors confused by the dynamics of the broadcast industry. Please don’t write in.

Smaller privately owned vendors often innovate the fastest in any industry. Private ownership allows them to optimise their own balance of innovation and risk internally. This is usually via a succession of early sales, where they try to mature their solution (finish the product) whilst gaining feedback. This is a tried and tested path for the vast majority of the start up and small (say around $5m annual revenue excluding support) vendors at NAB. This inevitably leads to a highly challenging imbalance, choosing between continued investment in innovation and development vs. the growing pressure to deliver on their commitments in new sales and projects.

With many customers actually much larger than the suppliers their businesses rely on, in terms of revenue, customers do exert inappropriate pressure at times. When further growth is required beyond what is possible organically in-house or it looks like the wheels are falling off due to customer success and pressure, investment is sought.

Another potential cautionary indicator is when a vendor’s key developers end up on the projects. Late night tactical coding on the job accompanied and too many fizzy drinks is fast but often means poor quality control and bad documentation. This high wire act is usually managed instinctively by a small core group of people. Often the company founders, lead by a charismatic CTO are performing the front line communications face to face. Unless this can be scaled-up, the acquired company however smart may not add as much growth as expected.

I’ll leave it to Keith Nicholas to bring us back down to earth.

“However long you have worked in the industry we all develop a network of trusted colleagues and associates who we work with and follow from supplier to supplier, these relationships can be overlooked at the time of merger, but it can make the difference between a sales call been accepted or declined. I am a strong believer that our industry’s greatest strength is still the people and personalities.

First published in TVB Europe July 2015