M&A and Commercial Model Integrations
Alexander Group predicts that M&A and integration trends will continue to reflect broader XaaS industry-wide go-to-market trends in 2022, which focus on providing holistic platform solutions, improving customer experience and speed to value. Expectations for speed of integration will continue to increase, and goals will focus on time-to-value for end-user customers, thus improving the overall customer experience.
Top XaaS organizations are strategically using M&A to drive growth through acquisition, and Alexander Group research indicates leaders are prioritizing M&A deals focused on specific use cases for a greater range of plug-and-play capabilities and flexibility, building towards scaled tech ecosystems. There is a clear imperative to meet buyer needs, primarily in improving customer experience to drive the ecosystem strategy. For example, Cloud & Data Analytics are emerging as key building blocks within ecosystems and thus are appearing as higher priority acquisition targets.
Expectations for speed of integration will increase in 2022 as organizations focus on expansion because one of the key goals will be to create a seamless customer experience post-M&A. On the go-to-market side, key milestones for a successful integration will continue to include mainstreaming products into the portfolio carried by core sales teams, addressing potentially disparate partner ecosystems, and integrating roles and coverage, including rules of engagement for specialists.
Davis Giedt: Welcome everyone to our series on tech predictions for 2022. With me today we have Ted Grossman, leader of our technology practice and principal with Alexander Group. I’m Davis Giedt, leader of our analytics and research practice, and we’re looking forward to talking today with you about M&A and integration, particularly go-to-market integration in the tech space in 2022. So, our prediction for 2022 is that M&A and integration trends will continue to reflect broader XaaS industry wide go-to-market trends that we’ve been seeing that we’re going to be talking about in several of our other predictions in this series. The expectations for the speed of integration specific to the go-to-market integration will continue to increase, and goals will focus on time to value for end-user customers, so, improving the customer experience. Ted, do you want to tell us a little bit about the changing approach to tech M&A and sort of how organizations are thinking about taking a programmatic approach to build scaled tech ecosystems? Should we start there?
Ted Grossman: Yeah, sure. And thanks for the introduction. You know, I think, why do companies do M&A in the first place? The general thing is people are looking for growth opportunities; they’re looking to harvest. Sometimes it’s a financial reason around creating greater profitability options for themselves in the tech space. What we’ve been seeing, and I think it’s going to continue to be a trend going forward, and this is why its prediction, is this focus on sustained revenue growth, specifically across recurring revenue growth. And when you think about the general trends there, Having more expansion plays, having ways to improve that is becoming key. So, the strategies that companies are using for their M&A, the priorities they have is: what is it doing to drive recurring revenue growth? And there’s really two things that help companies do that with there with regard to their product portfolio and their offerings. One is: anything that helps them to enhance their customer experience. You know, recurring revenue is all about staying in touch with your customer and working with them on a continual basis. So whether the acquisition actually has customer experience built in, or the acquisition provides some resources to the purchasing company to support that, that’s one big thing that we’re starting to see. The other area is simply that it fills out their portfolio. It’s an easy add-on to what they’re already selling. And while that’s always been sort of true, this is becoming like a big double down for even the bankers who are putting up the money for these types of things, for example, what we see in private equity. So that’s really it. It’s not so much that it’s something new, but it’s just a very, very strong focus on recurring revenue. And how are the acquisitions going to affect that?
Davis Giedt: Yeah, it’s a really good point, Ted, that you mentioned around this expansion play and targeting specific use cases for better range of capabilities and flexibility. So, enhancing your current capabilities, you know you’ve got a good platform and a good core piece of your business, and you’re looking for other products and services that align to use-cases and needs of your customers. So let’s talk a little bit about changing expectations on the integration side. So, We know that the speed of integration expectation is increasing; organizations are focusing obviously on customer success-oriented outcomes as part of their integrations. Tell us a little bit about what you’re seeing in terms of successful integrations and how folks are setting goals for integrations, particularly on the go-to-market side.
Ted Grossman: Yeah. Again, it’s sort of like the same all over again, but with a much more discrete focus on time to market and value, and it’s all around the recurring revenue model. So what’s happening is when companies are being integrated together, it’s saying how does that affect customers and how can we create that customer experience faster based upon now a greater set of offerings than we had before? And honestly, people are recognizing because it’s not about selling giant new increments and giant new deals necessarily in your cross-sell. It might just be getting a small piece to get going right away, just like a land and expand strategy. The cross-sell is working in the same way, so the expectations for whether it’s a private equity firm that’s putting money into this or the market itself or the companies themselves is I want to do integrations where I’m starting to see momentum build for the cross integration of products and offerings much faster than I have in the past. And I think that’s really the driver there. I’ll give an example. There are certain kinds of acquisitions that we’re starting to see more often than not, and I’m not going to prognosticate too much on any one type of application or feature. But in general, think about artificial intelligence and data analytics. Most companies provide some sort of platform and the ability to analyze how that platform is working, how it’s affecting business value and outcomes is something that everybody needs; it’s a natural extension. Companies that are providing those types of tools are getting snapped up. They’re being created, brand new companies, and they’re being snapped up because they fit so well into people’s overall portfolio strategy. So,and you know, it’s an easy thing. You can try it and you can get and you can start using more and more and more of it. And it doesn’t mean that you have to wait 18 months until there’s been a full integration of the two companies.
Davis Giedt: Yeah, that’s a really good point. And so thanks. Thanks again for your time, Ted. Looking forward to the next one.
Ted Grossman: Absolutely. Thank you.