Tech firms must prepare for churn in M&A era

Tech companies have a ravenous appetite these days, gobbling up rivals and competitors with gluttonous abandon.

Tech companies have a ravenous appetite these days, gobbling up rivals and competitors with gluttonous abandon.

Research firm IDC recently noted that the number of mergers and acquisitions among enterplrise software companies jumped from 144 in 2004 to 199 in 2005, with the value of such deals doubling to more than $36 billion. And while there was just one deal worth more than $1 billion in 2004, there were seven last year.

So as more companies look to an acquisition rather than an IPO as an exit strategy, many technology agencies and practices are faced with greater client turnover as more clients get sucked into the gaping maw of tech giants on a merger rampage.

"There is always a risk that you will lose the client," says Susan Butenhoff, president and CEO of Access Communications, adding that an acquisition is often seen as an opportunity to seek new PR insight to help refresh the brand.

"Market your results to everyone in the company," she adds, to increase the likelihood that the relationship with the acquired client will transfer to the acquiring company.

Butenhoff was fortunate enough to retain relationships with three of the agency's four acquired clients last year, but she also recognizes there's no guarantee the relationship will continue. So as soon as clients advise Butenhoff that they are being acquired, she starts looking at new business opportunities.

"We had a new business pitch within two weeks of being told that a client was being acquired," says Butenhoff, adding that her loyalty always lies with the current client, and she lets the prospective client know as much. But she says she also inquires about the timeline for the acquisition, to better plan new business development.

"The tough thing about acquisitions is that the client can't give you much information, often because they just don't know," says Chris Perkett, president of PerkettPR. "You must be in constant communication and give them a million reasons to go to the company they are merging with and be your cheerleader."

PerkettPR works mainly with emerging companies that often get acquired. But that shows, says Perkett, that the firm has helped its clients generate awareness leading to acquisitions, and has helped Perkett replace business lost to M&A with young companies looking to build similar awareness.

Because of the heightened M&A activity, agencies would be wise to diversify their client portfolio and not rely heavily on just one client or sector, advises Morgan McLintic, a VP with Lewis PR.

"Even if a large company is your main client, they might switch firms as part of all their acquisitions," he says. "The biggest cause of client churn we're seeing has been because of M&A."

McLintic agrees with Butenhoff that agencies must immediately look at ways to redeploy the account team, and a strong business development team is more important than ever.

"You just need to prepare for it as you do anything else in business," adds Perkett. "You always have to be looking ahead."

KEY POINTS:

Use the account team's expertise to find new business, but remain loyal to the existing client

Diversify client base in order to be less susceptible to M&A activity

Leverage client churn to attract startups looking to boost their profile

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