CXO

Avoid rocky vendor-client relations during M&As by planning for bumps in the road

Don't let vendor or client relations sour during mergers and acquisitions due to vendor change management control or unexpected changes in service or products. Take these preventative steps.

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Mergers and acquisitions are commonplace in the technology sector, but they can be unsettling to enterprise CIOs. The reasons why are easy to understand:

  • If IT is relying on a vendor for mission-critical products and/or services, it is unknown and worrisome what directions these products and services will take with a change of management control.
  • Vendors and their customers get comfortable with each other, with regards to sales negotiations and ongoing business relationships. When one or several of the parties leave, this disrupts that balance and can even force relationship building to start all over again.
  • If verbal promises are made to "take care of" things, all bets are off as to whether those promises get fulfilled under the new management.

There is no guarantee that vendor service levels will continue because with mergers and acquisitions, there is usually a high risk that key contributors whom enterprises rely on could leave. Business processes and even systems can change when a new organization takes control.

Steps enterprises should take

Despite these risks, a surprising number of enterprises never consider what a change of management control at a key vendor could mean when they sign a contract. They should think about it, starting with the contact negotiation process, which is when the enterprise has the most leverage.

Since a prospective enterprise customer is unlikely to see a change of management control clause in the contract, he should prepare his own. If the prospective vendor counters that its legal staff will not work with changes to the boilerplate contract, this problem can be circumvented by drafting an addendum to the contract that addresses change of management control, and then drafting a cover letter that states that the contract in its entirety is the integration of both the original vendor contract and all addendum additions. An addendum to the contract should address the customer's right to break the contract in the event of a vendor change of management control.

Steps vendors should take

On the vendor side of this situation, there are also preclusionary steps that can be taken in the event of an acquisition or a merger. These steps can assist clients with feeling at ease, and can also reassure them that the products and levels of service they rely on will continue to be available.

The steps include:

  • Factoring in customer concerns (and how you're going to address them) as part of any looming merger or acquisition discussion.
  • Being aggressive during meetings with clients (which should be in-person) as soon as it is permissible to talk about the merger.
  • Assuring key contributors that they will continue to have jobs, and that your "front-facing" personnel to customers will remain unchanged.

Work within a two-year timeframe

Everyone expects that changes will occur when mergers and acquisitions take place. The timeline that seems to work for most in terms of keeping situations stable seems to be around two years. A two-year timeframe after a merger or acquisition is usually enough time to enable customers and potentially new players to get used to each other.

In other cases, a vendor can encounter customers that are disappointed by a merger. One example is a Midwestern bank that was so upset the vendor it chose for its core processing was being acquired by a competitor that it had deliberately avoided doing business with that the bank simply requested an opt out, which the vendor gave.

The bottom line

The merger and acquisition "takeaway" for enterprises and vendors is not to take situations for granted, and to empathize with what these situations are likely to feel like in the other person's shoes.

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About

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

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