Structural changes in the acquired company after an acquisition

Change in number of employees

IT companies bought by PE companies do not report any significant cuts in employees as a result of the acquisition.

The one significant change in number of employees mentioned by many of the interviewees was that some functions such as accounting and sales, experienced significant cuts in the headcount.

Other reasons for a reduction in numbers of employees were employees quitting since they did not want to work for the acquiring company, or groups of employees leaving to start a new (sometimes competing) company.

“[…] during the two years after the acquisition there was a couple of employees […] that were very fond of the entrepreneurial spirit we previously had, that chose to quit.” – Quote regarding employees quitting since they enjoyed the entrepreneurial spirit of small companies

The acquiring companies tried to retain engineers and programmers since they were the source of know-how and technology. These attempts had varying degree of success according to the interviewees.

Cultural changes

Cultural changes and challenges were not looked upon as a big problem.

Comments such as:

“A programmer is a programmer, even if she/he is Norwegian, Swedish or American.”- Quote regarding cultural similarities

can be interpreted to mean that the development and operational parts of the organization does not have major cultural changes or issues that has to be handled.

Often the cultural changes were more present in administrative and sales oriented parts of the organization, which was shown by statements such as:

“The Danish people are much tougher and stricter.”- Quote regarding administrative changes

or

“The focus on reporting of financial numbers has become much stronger.” – Quote regarding financial changes

or

“Due to the integration the whole organization has become more bureaucratic.” - Quote regarding administrative changes

The comments show that the administrative functions had the hardest time implementing or handling the cultural changes. Despite the fact that administrative functions had some cultural clashes with the acquiring company, nobody described it as a situation that could harm the acquisition in such a way that it could fail.

Change in focus on R&D

When asking the interviewees about any changes in the focus on R&D after the acquisition we got mixed responses. One of the interviewees informed us that they were almost only doing R&D (mostly development) after they were acquired, while another told us that they quit R&D completely and were only doing adjustments to their existing product.

“[…] development was shut down; there was only a few left that continued to make adjustments.” – Quote regarding complete shutdown of R&D

In the cases where it was obvious that the acquiring company wanted the target company to continue independently, it seemed like they were willing to contribute financially in order for the target to continue developing their products, or develop new ones.

“[…] if you become acquired by another IT company you will get more help to focus on R&D and cultivate your technology […]” – Quote considering the advantages of become industrial acquired.

While there were mixed results regarding changes in the focus on R&D, we found that some of the companies had their R&D processes gradually moved out of the country for different reasons.

Customer reactions

Nobody mentioned any major reactions from customers after an acquisition. Some issues due to changes in strategy that made the product/service less adapted to

certain customers were mentioned. Almost all stated that a good and informative information flow was the key to keeping the customers up to date around the acquisition case and succeeding in keeping the customers.

In one specific case the company mentioned that they talked to Norwegian customers and convinced them to become operated from Sweden instead of Norway, which enabled the company to reduce their operational costs. This case exemplifies that the importance of the location in this industry is not as crucial as in many other industries.

Structural changes in administration

The most common structural changes done in the acquired company after an acquisition were attempts to increase the effectiveness of administrative tasks. To what degree and when it was done vary from case to case. We found that initiatives like this were attempted in both financial and industrial acquisitions.

Everything from outsourcing of selected positions to the acquiring company’s country, such as accounting or call centers, to reducing and simplifying of processes. Economies of scale and the possibility of achieving a lower cost level by outsourcing from Norway has been the major motive.

Another issue mentioned many times in the interviews was the increased focus on reporting. Both financially acquired companies and industrial acquisitions lead to increased reporting after the acquisition. This was described as a negative, because of an increased focus on the short-time profit and because it reduced the employees’ work capacity in the market and towards customers. The positive side was that they had a higher control level and a better foundation for analyzing performance.

In many cases the industrially acquired companies were managed by the top management of the acquiring company, meaning that overall strategy was managed from abroad. Restructuring of large parts of the organization was also a common occurrence. An example would be that departments or market segments restructured and adapted to the new merged organization. The management in Norway got less responsibility, and less company control.

Structural changes – Location

When asking the interviewees about changes in location of the target company, we wanted to uncover whether or not it was common for the acquirer to move parts of the organization to other countries.

We found that offices located in other countries were integrated with offices of the acquiring company, and in some cases shut down.

“Yes, the offices we had in other parts of the world was absorbed by the local offices of [name of acquiring company], with the exception of the offices we had in Scandinavia.” – Quote regarding the absorption of offices

It was also a common occurrence that some of the support functions were outsourced from the company, in order to reduce costs.

In most cases the development departments were left untouched to a large degree, and kept in Norway. But in some cases the interviewees explained that the growth in development happened in other countries than Norway even though it was related to the product of the acquired company.

Structural changes – Strategy

The changes in the strategy of the acquired company seemed to be tied up to what type of company that was buying. In financial acquisitions the strategy of the company normally continued with only slight modifications. In industrial acquisitions the changes were much more radical. In some cases, companies that had operated the entire value chain themselves were changed to become one part of the value chain, namely R&D. They went from having their own business strategy to be a part of the acquiring firms’ strategy. The consequences were loss of contact with the market since sales and marketing were fully controlled by the acquiring company, and at the same time increased specialization in their area of expertise. The Norwegian companies became a provider of a specific technology to the acquirer.

“If all the functions such as strategy and finance end up in Silicon Valley we will end up with a challenge regarding the competence required when starting a new company.” – Quote from Paul Chaffey – CEO at Abelia

Most of the companies acquired for their technology or their market positions had to adopt the strategy of the acquiring company, which led them to address the needs of new customers with new products, although these products were quite similar to the products they offered before the acquisition.

Transfer of resources

It was mentioned that most of the exchanges between the two entities was competence transfer. IT competence was often exchanged through collaboration in projects or by people working in the other entity for a while. Administrative competence was exchanged through members in the management or new board members with industrial knowledge.

We observed exchange both ways, but mostly we see an exchange from the acquirer to the acquired company. One possible explaining factor might be that the companies we have interviewed still exist or is more or less implemented into the new organization.

Best changes

The best changes that happened as a result of the acquisitions were stated to be access to competence from the acquirer, through exchange of employees, or new people brought in to the board of directors and management. With this new access to competence the companies were able to realize new and more advanced projects, become more professional in their execution, and achieve more efficient administration and financial management.

Another positive aspect was cross border collaboration in big cases and projects.

The professionalization of R&D was achieved through the development of efficient, focused, and well planned projects. The S&M departments were also developed further, and they got access to new sales channels.

Some interview subjects also mentioned the importance and advantage of an increased network after the acquisition, which gives better access to people, and a larger organization with more execution force, better suited to handle and succeed in projects.

“Suddenly we had 80 new colleagues. The best part about it was probably that we learnt a lot from each other, We were able to merge the best parts from both Norway and Sweden.” – Quote regarding increased company network

Worst changes

When we asked about negative changes we got many different opinions. One change that was perceived as negative was that companies bought mainly for their technology lost touch with the market and customers. This was a result of them focusing on their developmental resources, while the acquiring company managed sales and other customer related activities.

“We lost the part of the business related to being a part of the process from start to end, since we are no longer involved in the “go-to-market” activities.” – Quote regarding losing touch with the market

Another change that happened in some cases was key employees leaving the company. Key employees with no problems getting a new job opt to leave due to the uncertainty following the acquisition. In some cases the acquiring company gave these employees additional benefits, in order to ensure that they stayed with the company.

Some of the interviewees also experienced an integration process taking more time than expected, and/or was conducted in a less than optimal way. This often led to a period where the target company performed worse than before the acquisition. Another recurring theme in the interviews was increased levels of bureaucracy. Small companies, used to delegate a lot of responsibility to their employees, found themselves with slower response time to customers’ inquiries, since they had to implement new procedures of how to react to these situations.