There is probably no more daunting entrepreneurial challenge than allowing a company to be acquired by another company. What keeps an entrepreneur awake at night? How about, "What will happen to me, my leadership team, my employees, my technology, and my brand? Will all that we’ve worked hard to create simply vanish from the face of the earth?"
Most entrepreneurs want a big payday as a result of an initial public offering or by virtue of being acquired. Sarbanes-Oxley has had the unintended consequence of dramatically reducing the number of IPOs, so the more common U.S. exit strategy for entrepreneurs today is via acquisition. Acquisitions aren’t without challenges.
Cisco, Google, HP, Yahoo, Oracle, and Microsoft have well-defined processes for acquiring companies. However, the acquiring companies are often like Borgs we learned about in the television show Star Trek. Diana Adams, in a blog posting titled "We Are The Borg; You Will Be Assimilated" offers her favorite Star Trek quote:
"We are the Borg. Lower your shields and surrender your ships. We will add your biological and technological distinctiveness to our own. Your culture will adapt to service us. Resistance is futile."
"…For those that are not familiar with the Borg, they are part organic and part artificial beings. They assimilate almost everyone they come in contact with…they absorb them into the Borg, which is a mass consciousness, and they become efficient drones who do not even remember their old life. As part of the Borg, you become a small part of a whole (the collective), and lose all sense of individuality."
Sounds inviting, doesn’t it? Yet, this pretty accurately characterizes most merger and acquisition (M&A) activity. The entrepreneurs earn a big, well-deserved payday but lose their souls and identities in the process. Most entrepreneurs (impatiently) wait the x number of months or years they are required to before breaking free from the Borg to start the process anew.
In getting to know some of the executives of companies acquired over the past year or so by Dell, I have observed something quite different from what I see with other similar acquisitions:
- The executives are energized and enthusiastic about their futures and their employees’ futures.
- The acquired companies are experiencing meteoric growth as a result of the union.
- No executives are entertaining the idea of leaving Dell (and I asked!).
- All reported extremely low (if any) human resource turnover.
- Everyone seemed to be extremely engaged in the business.
Dell, a Fortune 50 company, is clearly doing M&A differently and more effectively. Understanding the "secret sauce" behind Dell’s M&A process could help entrepreneurs and their employees as they look to possible acquisition suitors.
About Dell and Its Acquisition Process
Dell acquires about eight companies a year. Dell looks at 250 companies each year to find the eight. This acquisition pace will continue. To be acquired, a company must be innovative, disruptive, and help Dell customers solve their biggest challenges and pain points in their businesses.
A company must be growing rapidly on its own and be able to leverage the Dell brand, distribution, and increased investment in R&D so Dell can accelerate that company’s growth. The company must enhance revenue, margins, and Dell shareholder value. Dell looks at the company, the team, and their objectives, and how Dell can help it expand upon its success.
The Dell M&A process is led by David L. Johnson, Senior Vice President, Corporate Strategy. Johnson says the companies Dell acquires have expertise that Dell does not—each acquired company is itself a thought leader. There are also things Dell can learn from each company, whether it be in the way each company innovates, develops, manufacturers, markets, or sells. Dell must foster continued growth in their acquisitions’ success and market expansion, not stifle it.
Here are nine "secret sauce" attributes of Dell’s acquisition process distilled from my interviews:
- Dell has a clear respect for heritage, culture, intellectual property, intellectual capital, and risk that the entrepreneurs took in each company it acquires.
- Dell preserves the acquired company’s identity. The acquired company appends the Dell name in front of its business name, e.g., Dell KACE, Dell Boomi, Dell SecureWorks, Dell Compellent, etc.
- The acquired company must elevate the Dell brand; the Dell brand must elevate the brand of the acquired company. It’s a two-way street.
- Dell provides each acquired company with its own profit and loss statement so it can measure and understand its individual performance over time. The company doesn’t get lost in the larger corporation or a business unit reporting. [Note: This financial reporting is for internal use only.]
- Dell carefully examines and seeks to understand what each firm is doing in terms of core processes, insisting that core processes change only if there is no great differentiation from standard Dell core processes. If an acquisition has a better approach that is working well, it may continue with that approach. This has been applied in terms of marketing approaches, web sites, customer support, etc. Best practices within an acquired company may be leveraged in other business units of Dell.
- Dell doesn’t buy a firm because it can—it buys a company for the underlying value the company brings to Dell customers.
- Dell doesn’t look at acquisitions as a means to acquire talent.
- The process of accelerating sales starts the day an agreement is signed by both parties. There is no reason to delay the integration process. Dell does ingredient acquisitions (contrasted with blockbuster acquisitions), meaning no U.S. or international regulatory approvals are required for the merger to be finalized. Most acquisitions close in 90 to 120 days. The integration process starts day one while the paperwork is being finalized.
- Dell conducts a thorough review of each acquisition after integration is complete to see what process improvements can be incorporated, making it easier for those companies that are acquired later.
Additional Insights From the Entrepreneurs
- Each entrepreneur I interviewed told me they had been approached by companies other than Dell to be acquired. Most accepted less money from Dell than they had been offered by other firms because of the total fit with Dell, Dell’s commitment to their employees and leadership, Dell’s commitment to no terminations of their employees, and the commitment to support their existing cultures.
- After acquisition, one entrepreneur set the expectation with his team that the things that had been easy would become a bit harder after acquisition (IT, HR, legal, etc.); the things that were hard, like scaling the company, ramping the company, having money for R&D investments, would become easier. This is proving to be true some 18 months later. His company just launched their technology in five new languages for Dell’s global customers, something that would not have been possible at this stage of his company’s evolution without the additional R&D investment and investment in customer support.
- One firm has an annual service mission for many of its employees to Nicaragua. Employees are allowed to travel to Nicaragua on company time. Dell values giving back as part of corporate social responsibility; this tradition and synergy with the culture of the acquired company was preserved.
- Dell has a strong commitment to integration of the acquired companies. Johnson is personally involved in reviews conducted every two weeks.
- Michael Dell, himself a very engaged, hands-on entrepreneur, is a key reason why these entrepreneurs were willing to entertain an offer from Dell. Dell runs a positive, aggressive culture with a strong customer focus. This helps the entrepreneurs feel very comfortable that they are understood.
- Dell’s global reach and clout is an important factor in attracting the companies Dell acquires.
- Dell’s commitment to continue to invest in the technologies of the acquired companies is also critical; Dell was not interested in shrinking development and support.
Many companies involved in M&A get very excited about "closing the deal" and lose the momentum created after the merger is complete. That just isn’t happening at Dell. It’s very exciting to watch and hear the stories.
Occasionally, a firm acquires a company and everyone shakes their head wondering, "Why on earth did they buy that?" I’m sure Pure Digital—the firm that created the Flip digital video camera—looks back on its acquisition by Cisco and wonders what either leadership team was thinking at the time. The results were bad for both companies, Pure Digital’s employees, and their loyal consumers. Sadly, this example is not an aberration from a post-M&A standpoint.
The success of Dell’s M&A process comes down to three things: (1) deep mutual respect, (2) strong fit with Dell customer needs, and, (3) a tenacious focus on post-M&A integration. Entrepreneurs of firms hoping to be acquired can learn a great deal from Dell’s best practices.
Dave Gardner is a management consultant, speaker and blogger who resides in Silicon Valley. His firm helps clients eliminate business execution issues that threaten profitable and sustainable growth. He can be reached through his website at www.gardnerandassoc.com or via Twitter @Gardner_Dave He is a member of Dell’s Customer Advisory Panel. The following people contributed their insights to this article: Dave Johnson, Dell; Rob Meinhardt, Dell KACE; Rick Nucci, Dell Boomi; Phil Soran, Dell Compellent; and Mike Cote and Kathy Jacques of Dell SecureWorks.
[Image: Flickr user MJ/TR (' w ')]