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Your IT provider is being acquired – what does this mean for you and your business?
Merger and acquisition activity is widespread in the IT sector, but what does it mean for you when one of your key tech suppliers is bought up by another firm?
At the end of August 2018, Taylor Made Technologies, one of the Solent’s largest IT providers, was acquired by Peach Technologies. Although the deal may not have made waves in the world of mergers and acquisitions (M&A), it will have been of interest to the thousands of customers serviced by both companies.
In a world of growing technological complexity, companies of all sizes rely on their IT to survive and flourish, and many depend on IT support provided by third parties. This could be through the provision of backup facilities, cyber security support, data handling, 24-hour problem shooting, or for myriad other services.
It can often involve staff being seconded into the business. These services are critical and the companies that provide them are entrusted to maintain a high level of support at all times to keep their customers running. So when one of these companies is being acquired, what does it mean for you as its customer?
More often than not, you are unlikely to know that the deal has happened until it is already over. During the deal process, it is very much on a need-to-know basis and the buyer and the seller will do all they can to limit outside knowledge of what is going on.
However, depending on the importance of your business as a customer, the buyer may well want to speak to you before completing the deal, especially if your contract contains a “change of control” provision. Change of control can give customers the opportunity to cancel their contract if there is a significant change in the ownership of their supplier, and vice versa.
Change of control clauses are common in all areas of business, but they can become a real nightmare for a seller. While a buyer is unlikely to be concerned about those contained in standard contracts, such as with electricity and water suppliers which can easily be maintained or replaced, they will be concerned about customers jumping ship or renegotiating terms.
To soothe these concerns, buyers may ask to meet with key customers to ensure the change in ownership does not lead to a loss in business. This may be the point at which you find out the deal is happening.
Renegotiating terms is not always possible
If you are in a position where the buyer and seller have come to seek comfort from you, then this could seem like an ideal time to renegotiate terms, but it depends on the kind of work the supplier does for you.
The problem with a lot of IT support is that it is not usually as simple as swapping one provider for another. Their services are often entwined with the way in which the business is run, and so moving from one to another can be a complex and time-consuming process. Unless you are confident of terminating the contract without it significantly affecting your ability to operate, renegotiating terms may not be the best option.
If you do decide to push for a renegotiation of terms, be aware that this may scupper the deal. The purpose of the buyer meeting you in the first place will be to seek reassurance that you are not planning to cease being a customer and so, depending on your importance, any attempt to renegotiate terms could make the deal less attractive for the buyer. They will want to be reassured that it is business as usual once the deal completes.
Benefits and pitfalls of a merger
But just because you are unable to renegotiate doesn’t mean there aren’t other benefits to be had from meeting the buyer. This can be a perfect opportunity to ask questions about the structure of the company going forward and to find out if there are additional services that may now be open to you.
You may be able to consolidate services that were previously provided by different third parties and the buyer will be keen to maintain and grow your business with them. Once you find out who the buyer is, whether before completion or immediately after, it will be worthwhile meeting them to talk through what it means for you and how you can benefit from it.
There are pitfalls to be aware of, however. Generally speaking, IT support services often have a large amount of unfettered access to your company’s data. This can be highly sensitive and so you need to think about what it means having a new party – the buyer – having access to it.
Read more about tech M&A
- Enterprise IT runs on networking, so fixing up the network should be a priority issue during mergers and acquisitions – but that’s not always the case. Find out how the pros manage it.
- Companies are leaving themselves wide open to cyber crime, especially after M&A, so they need to start enabling cyber security professionals before they face serious problems.
- M&A activity in tech poses risk to business continuity.
An example of where this may be an issue is in relation to law and accountancy practices. The buyer could turn out to be a client and, if that is the case, you have the situation where their employees may now be accessing confidential information about their own employer. In such a situation, it is vital to talk to the buyer about the potential risk and how to overcome it.
It is also important to be aware of the impact that an acquisition can have on the day-to-day running of a business. A company sale is an extremely stressful and difficult time. The sellers must focus on the mechanics of the deal, which can include intensive due diligence and disclosure processes, while at the same time running the business as usual.
This can have an impact on the level of service that they are able to offer their customers. If managed properly, you won’t know it is going on, but don’t be surprised if it’s harder to contact key figures at your supplier and if services levels are not as they should be.
Generally, an acquisition should be seen as an opportunity rather than something to be nervous about. Once you know what is going on, it will be important to keep talking to your IT supplier and to understand the background behind the sale and what it means for you.
If you are a key customer, they will be keen to reassure you that it is business as usual, and so use this as a chance to speak to the right people at the supplier but also to get to know those at the buyer as well. The more informed you are, the easier it is for you to ensure that your business isn’t impacted by the change in ownership.