During an IT due diligence effort, it’s not unusual to find that the target company has made different choices when it comes to programming languages or operating systems. Beyond these obvious disparities, however, there may also be cultural incompatibilities. These need to be understood, and when possible, addressed. Otherwise, you may find that you’ve just acquired a company where every key employee will be gone in six months.
Here are some issues that you should consider while you go about the more technical work of IT due diligence. They may not seem important in the scheme of things, but you can be sure they are VERY important to at least some of the employees at the company being acquired.
As usual, I’ll refer to the company being evaluated as TargetCo and the purchasing or investing company as AcquiringCo.
Tech Personality Types
If you’ve spent any time around software developers and other tech employees, you’ve figured out that they can be a colorful bunch. Infoworld has a great article on programmer personality types. Here’s a very accurate overview of IT personality types from ComputerWorld UK – my favorite is “The Human Roadblock”.
Many small companies take on the personalities of their strongest employees. If you’re buying a startup where the mentality is to come up with an idea for a cool new feature, work 24/7 to develop it and then roll it out to see what the customers think, it won’t take too many times for those employees to run into “The Human Roadblock” before they figure out that AcquiringCo isn’t for them.
“Fast and Loose” Environment vs. ”Well Documented / Methodical”
In most startup IT companies, the overriding goal is to get the product to market ASAP. To achieve this goal, things like well-commented code, backups and system documentation can go out the window. Other formalities at AcquiringCo such as product management, system analysts and QA may also come as a shock to TargetCo’s employees. If AcquiringCo is an established organization with strict processes in place for its operations, you can count on employees of TargetCo seeing these as nothing but needless bureaucracy.
High End Employees vs. Cheapest Available
Companies can have wildly divergent hiring strategies. Some companies may prefer fewer, expert employees and others hire an army of lower level staff, hoping to find diamonds in the rough. If you’re acquiring a company with the latter mentality, be aware that there can be a lot of turnover on the way to a stable workforce, so HR and recruiting resources need to be considered. On the other hand, if you are that company with many less-experienced employees and you’re acquiring a company with a handful of industry visionaries, be aware that they may very well be unhappy in an environment where they aren’t challenged and inspired by their peers.
Software Development Methodology
There are many established software development methodologies, and new ones come in and go out of fashion frequently. Software developers can become quite attached to their chosen method, sometimes almost to the point of evangelism. If this is the case at TargetCo, and AcquiringCo enforces a different approach, this can be a sure path to tension.
Offices vs. Cubicles or Open Work Areas
Tech employees can be very sensitive to their working environment. Their jobs often require a lot of concentration, and certain companies provide individual offices to most or all of their tech staff. If you’re buying such a company and plan to make room for more employees by moving everyone to new office space with cubicles, to some employees that could be as bad as telling them they can expect a 50% pay cut.
What can you do about these potential cultural conflicts?
First, be sure they are mentioned in your due diligence report. In my opinion, the job of the person performing IT due diligence is to identify any issues that can impact the success of the transaction, not simply the quality of the source code and age of the servers. In severe cases, the cultural differences may be significant enough to abandon the deal.
Second, when there are real cultural concerns that may cause you to lose key TargetCo employees after the deal closes, it’s advisable to lock up those individuals with employment contracts or other incentives. In addition to keeping the key members of the TargetCo staff around, if they’re happy they can be cheerleaders for AcquiringCo and this can help retain the rest of the staff.
Third, don’t change for change’s sake. If there’s not a compelling reason to standardize software development methodologies, for example, don’t force TargetCo to convert.
Finally, after the transaction closes, place an emphasis on communication with the acquired employees. While this should be the case in any transaction, pay particular attention to the cultural issues that were identified during IT due diligence. If you need to make a change in a sensitive area, clearly explain why and emphasize other policies or benefits that may be new and positively received. Consider surveys and town hall meetings so the employees can at least feel that they’ve been heard during the process, even if they aren’t thrilled with the outcome.
IT due diligence is about more than bits and bytes. Cultural and people issues can be even more important than the technology when it comes to the ultimate success of the transaction, so it’s critical that they be considered during the due diligence effort.