Making A Strategic AcquisitionBy: Mainsail Partners | June 1, 2014
More than just a numbers game, the success of an acquisition hinges on keeping key people – and customers – on board.
Carlos Antequera, CEO and Co-Founder of Netchemia discusses the experience from his company’s recent acquisition of SchoolSpring, including strategies for keeping key stakeholders aligned through the process and ideas for engaging the new customer base.
A strategic acquisition might look great on paper, but its value can be quickly diminished if key employees, not to mention customers, are lost in the process. “When you look at things on a spreadsheet it all seems straight forward,” says Carlos Antequera. “It’s easy to forget that people are the critical part of the transaction.” With this in mind, Antequera and his team tackled the people problem head on in their recent acquisition of SchoolSpring, a 20-employee K-12 job board and application tracking provider.
SchoolSpring was your second acquisition. Can you tell us about your first deal and its biggest challenges?
Three years ago we acquired a small company based in Oregon, Edzapp. We were expanding nationally and hadn’t been as successful in the Northwest because they had a foothold on the market. For us, acquisitions are really about growing market share faster and more efficiently than we could do ourselves.
There was a lot to learn, from the due diligence to the legal process. That challenge was compounded by the fact that we were dealing with an owner who was a founder-entrepreneur, and this was all new to him as well. The company was his baby, and the customers were folks he’d built relationships over long period time. Dealing with someone who hadn’t done this kind of transaction before and was very attached to the company and accustomed to their methods and processes of doing business presented some challenges in the integration. This was important, because the majority of what we cared about was the customer base, as opposed to simply buying a technology.
How were things different the second time around?
Similar to Edzapp, we were trying to expand the customer base nationally. SchoolSpring had strong presence in the Northeast, and this would allow us to acquire those customers at a faster pace than we would on our own. They also had a national job board for educators which had significant strategic value for us. The addition of the job board to our suite of products creates the most comprehensive cloud-based talent management platform in the industry.
On the practical side, we had more control and flexibility because of the investment and support from Mainsail; we financed the Edzapp deal in part with our own funds and with periodic payments to the owner. Also, the folks at Mainsail worked with us early on to help us determine whether this was a good long-term fit for our company.
A key difference, based on our previous experience, was that we spent more time asking the question of whether SchoolSpring would be a good fit culturally. From the beginning, we wanted to know how they treated customers, what those customers valued and whether employees will work well with us once the acquisition was done. In the first deal we made the assumption that Edzapp’s customer base behaved the same as ours. This time we made fewer assumptions and spent more time understanding why SchoolSpring’s customers bought its products.
You place a lot of emphasis on culture in the hiring and evaluation of Netchemia employees. How do you handle this when you were bringing 20 new employees into the fold?
Normally you don’t have close interaction with employees before a transaction, but we were able to have discussions with management about what they care about, how they worked with customers and how they thought their products helped customers. From that, we concluded there was a high likelihood that it would be a good fit culturally. Once the transaction was complete, we followed a process of onboarding just like we do for any of our new employees. With Edzapp we didn’t think we needed to do that because they weren’t new employees and had already been working in the industry. We learned some lessons from that experience., including the importance of constant communication.
How did you apply those and other lessons to the SchoolSpring deal?
We did a lot more work ahead of time to make sure we were prepared for what happens after the deal closed. In our first acquisition we were working so hard to just make the transaction happen that we didn’t think about what would happen after the transaction. Yet, that’s a critical time for making sure you retain employees. If you don’t, a lot of the value of the acquisition can be lost very quickly since a big part of the equation is in those relationships with customers.
We had a plan for what would happen immediately after the deal, from basic logistics like how SchoolSpring employees would be paid in the first pay period, to when and what to tell employees and customers. We had a fairly detailed plan for the first 30 days, as well as a larger picture of what would happen in the first quarter and in the first year.
As the CEO, how do you balance the demands of the deal with those of the existing business?
One thing that cannot be overstated is the complexity of completing a transaction and making it successful. There are so many moving parts, but you have to work on keeping the team focused on the original goal, why you did the deal in the first place. It helps to have experience, or at the very least to work with a mentor who has done this before. You also need to be ready on a personal level because there will a lot of day-to-day challenges.
Moreover, it’s important to make someone the point person for after the deal closes, and it doesn’t have to be the CEO. With the SchoolSpring acquisition, our Vice President of Customer Success spearheaded the integration because a lot of what we were focused on was keeping customers happy.
I would also add that in the case of SchoolSpring it was helpful to have our investment partner Mainsail who sourced the opportunity and supported us in the execution of the deal. It helped to minimize the distraction to our team and allowed us to stay focused on our current business as much as possible during the transaction.
What’s your advice for other companies looking to get the most value out of an acquisition?
Two critical things are communication and speed. You cannot over communicate with people. You tell them something in person, you tell them something in email, you tell them something on the next conference call. There are some key messages that just need to be repeated both on the values side as well as the logistical side.
If you think about being on the other side of the transaction, there are so many unknowns about the future, from whether you’ll keep your job to what it will be like working for this new company. It’s important to let them know that you understand this is challenging and then try to paint a picture of what will happen with as much speed and clarity as you can.