Episode 50 Transcript

The Impact of Mergers and Acquisitions on Technology Investments w/ Niels Haagsman

    Banoo Behboodi: Welcome to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. I'm Banoo, and today, I'm joined by Niels Haagsman.

    Niels is the Director of Business Transformation at Cross Country Consulting.They're the consultants for the consultants, and Niels is a leader in its Business Transformation Advisory Team, with a strong focus on growing its brand, service offerings, inclined portfolio, specifically on the U. S. West Coast.

    I'm really excited for our conversation today, and it's a topic that we haven't tackled before in our podcast. What we're going to be doing is diving in and understanding Neil's perspective on how mergers and acquisitions impact technology adoption in the process of making new technology investments that is the best fit for the entire organization.

    With that, thank you for making the time, Niels.I'm excited for our session. Welcome to the podcast.

    Niels Haagsman: Thanks, Banoo. I'm actually super excited to be here. This is my first podcast, so I'm a little bit nervous, but I'm sure we're going to have a good conversation. Thank you for hosting me.

    Banoo Behboodi: Of course. I'm looking forward to it. Before we get started, I think it’s always good for the listeners to know a little bit more about you, your background, but also Cross Country and your role at Cross Country Consulting.

    Niels Haagsman: Of course, I'm extremely happy to elaborate on that. Again, my name is Niels. I live in Oakland, California, with my wife and two young kids. I have a three year old and a 15-month old, so it's definitely a little bit crazy sometimes being in consulting with young kids. My wife is actually also a director at PricewaterhouseCoopers.

    She definitely knows what it is to work in consulting and combine it with family life.I joined Cross Country back in 2022, before joining, I worked at PwC for over 15 years, initially in the Netherlands, in our Amsterdam office.From what the listeners can probably hear, I'm not originally from the U.S., I am actually Dutch, born and raised in the Netherlands, worked in what they called CIO advisory.

    Basically, my main buyers are Chief Technology Officers, Chief Information Officers, and the types of projects that I did back in the Netherlands were basically helping them position and structure the IT function within their respective organizations.

    It’s a lot of IT assessments, IT strategy work, vendor management, outsourcing of IT, system strategy, system selection architecture work.Then the other pillar is what I consider digital transformation, so driving major cross- functional, multi - system, transformational efforts.Extremely interesting to do.Still love to do those kinds of projects.

    In 2016, both my wife and I got the opportunity to move to the U.S.West Coast through PwC.I actually got the opportunity to join PwC's M&A advisory team, hence also the link with merchant acquisitions as per Banoo’s introduction, did a lot of M&A IT integration, and also carve out work with the visitors separation. Very similar to the digital transformation work that I did back in the Netherlands, but at a higher pace, a higher impact, higher visibility, and higher risk, which makes these projects extremely interesting to work on.

    I joined Cross Country last year.Basically, because I got an incredible opportunity to build and manage its business transformation team here on the West Coast, which has been an incredible opportunity, but also to be perfectly honest, get a little bit of a better work life balance, especially with the kids.Cross Country, maybe a little bit of a quick introduction there, founded in 2011, very much rooted in the big four, the founders were former big four.

    All of the partners and probably most of the consultants working there, or at least 80 to 90 % of those have a big four background.Three pillars: accounting advisory—we're not a CPA firm, but we're helping a lot of accountants out whenever they are busy or provide advice from the accounting background—risk and compliance, and business transformation, which is what I'm able to speak to.

    What differentiates Cross Country from a lot of our competitors is our unique culture.It’s rooted in our core values, collaboration, energy, impact, and excellence.The way that you can best describe that is we really have good effort not to hire any egos or people that are very self - centric.

    We really want to come across as nice people to work with, but also, people that obviously have that big four background that know what it is to deliver quality, on time, and on budget, et cetera, like the advisor to the advisors.

    I really appreciate that.That's actually because over the last couple of years, I got the opportunity to work with another couple of other professional services organizations to help them with their challenges. What you typically see in that industry is that even though there are many companies advising their clients in how to do their work in a better way, who typically, may not have spent a good amount of time rationalizing and optimizing their systems, their processes, their data, and obviously introducing the concept of professional services automation.

    Being very much aware that this is a Kantata - sponsored podcast, it brings a lot of potential, but I think a lot of companies still haven't gone through that, step yet.

    Banoo Behboodi: Yes, I’ve got to vouch for a great team to work with because I know that we've worked together. I’ve worked with the Cross Country team across multiple prospects that I’ve used you guys as consultants, so we've come together as a group and vouch for that part.

    But I have to comment on the fact that it's such a great world where we can balance work and life. You and I have been on meetings where you've had to take care of your daughter, the baby.We've been on the calls. It's a very different world to when I had my children, but it's great that we've moved from that perspective.You can be holding your baby and be in a meeting and it'll be perfectly okay.

    Let's dive in to the discussion. What trends are you seeing in the industry around mergers and acquisitions? What are some of the headwinds faced specifically for service organizations and considerations to mitigate those headwinds.

    Niels Haagsman: Yes, that's a great question. A lot of the trends that you're seeing now in M&A are not new. They've been around for maybe a decade or two, or even longer, but obviously, with the incredible wave of M&A that we saw up to a year ago. Many of those trends became a lot more apparent.

    It's always good to go back to what the rationale for deals is and what that means from an integration strategy perspective. I see two different scenarios, which are on the one hand, it's what I call the tech and talent deals, where you basically want to either acquire a team of talented people or specific technology and important there to make sure that you actually assess up front, do your diligence and make sure that you actually get what you're actually buying.

    The other end of the spectrum is what I call transformational deals.There's a spectrum within this. You have the absorption deals where you say, “Hey, I'm buying this company and I want to get the people in that organization to adopt my processes, my systems versus the true transformational deals where you basically look at both companies and try to figure out, how can I best combine the capabilities of those two organizations, or do I actually use this as a trigger to potentially deviate away from any existing systems and processes, and adopt something completely new, basically taking a greenfield approach, whether it's for part of the organization or the broader organization.

    As you can imagine, this is very complex, but also offers an incredible reward where you can pull this off because it really allows you to reap all the benefits that the acquisition might offer you.

    Obviously, there are many challenges, and I think the more transformative the deal becomes, the more obvious these challenges become.The first challenge that I want to call out is cultural integration.Again, especially in the services industry, the biggest assets for many of these companies are their people.

    It's often a people-driven services model. Making sure that you buy a team that actually fits your culture or buying a company that fits your culture is very important. This often doesn't get the attention that it needs.That's, in my opinion, also the reason why many of these deals, in the end, do not lead to the synergies that were anticipated in the first place.

    Often what you'll see is that maybe some cultural diligence gets done. It stays at a very high level, but in the end, you really need to understand what makes a company unique and have a very thorough approach in place to address that—up to an individual level almost—to make sure that people don't run away once the deal has been completed.I know there are retention mechanisms that you can put in place, but those are typically just temporary stopgaps.That's number one.

    Number two is operating model integration, which is all about processes, systems, and data.It's very important to have a thorough understanding of how both the buying company, as well as the acquired company, work, why processes are the way they are in both companies, and how systems have been configured to support that part of the business, whether there are any existing pain points in those systems, and whether those systems are able to work together. Often, you see a lot of siloed systems within organizations.

    Having that understanding, coming up with a thorough roadmap to understand how you want to integrate both of these companies is very much driven by the integration strategy.Are you going to absorb ? Are you going to transform ? Are you going to introduce new technologies, all with their upsides and downsides ? Timing - wise, the earlier you start with assessing this, the better.This is often the long tail in the integration.The earlier you can start with this, the earlier you can wrap it up.

    Next one, very important for service companies, is client retention.First of all, obviously in front of the deal, make sure that you have an understanding of what's the client base of the acquired services company. Is there a lot of overlap? Is there not a lot of overlap? Sometimes you actually do a deal just to expand your client base, but sometimes you want to build upon your existing client base. In those situations, you'd rather have a lot of overlap between your different client bases.

    Then identifying any concerns that your clients might have with this transaction.Really early on in the process, start engaging with your clients, start finding out if they have any objections, any concerns, and address those as best as possible.

    Then the last one to call out is what I call IP and data protection.I think one trend that you see nowadays in the industry is that next to the traditional people - based services, often those nowadays get combined with either proprietary technology or with proprietary configurations in off - the - shelf programs because it's typically being used as a differentiator nowadays for many consulting companies to offer a differentiated experience for the clients, become more efficient, effective, etc. Making sure that you understand what technologies are being used, and if the deal, for some reason, collapses, like your competitor running away with your IP.

    Then the other thing is obviously data protection.Making sure that you are aware of security measures, similarly for privacy.Making sure that you understand any risks that there might be from a privacy perspective as more and more countries and states are adopting privacy regulations nowadays.

    Banoo Behboodi: Great. I love the four criteria. They're dead on in terms of my experience recently with the Kantata integration—our own integration process. Lately, all those four aspects were prioritized. But most importantly, I love the fact that you've put culture number one, and I'm assuming that was intentional, was it?

    Niels Haagsman: It was for sure.

    Banoo Behboodi: Yes because people are, especially in a professional services organization, the primary asset—being very transparent, clear in communications, and intentional about steps in integration seems to be very critical to that process. That being said, for multiple acquisitions, as you said point number two is a focus on technology and process. You did say to start that as early as possible. But we know that one of the bigger challenges is the disparate technology and processes that come from acquisitions.

    What are the considerations post - acquisitions rationalizing the technology and standardizing the processes and what are some of the hurdles and best ways to overcome them ?

    Niels Haagsman: That's a very interesting question, Banoo. I've worked with many companies that I would consider serial acquirers, which is something you see a lot in the technology industry. Basically, companies buying at least one company every year or multiple companies per year, even the bigger SaaS and semiconductor companies. This is a very common scenario. What you see there is that there's often a very big focus on what I call revenue synergies with these companies, because they buy another company because they see opportunities to cross-sell or to upsell.

    The priority when doing an acquisition is always on how do we enable both sales teams to effectively go to market and not disrupt them with any internal considerations that would be focused on integrating backend processes and systems, which on the short run really works, but on the long run leads to a lot of issues because over time, you start to accumulate multiple different process for doing basically the same thing, different systems, different data repositories, so it’s a different source of truth.Especially if you want to scale, that will get you into trouble sooner rather than later.

    Making sure to your point, that you have a strong perspective on what the company looks like that you bought from a process, the system, and the data perspective, and getting to a perspective on how you effectively want to combine that with your own organization is critical here.

    Banoo Behboodi: Yes, it's interesting. It's a bit of a chicken-and-egg thing with the four criteria that you said. Obviously, you want to focus on your culture, your people. You also want to focus on customer retention, but sometimes, you may not be able to succeed in both of those without really focused attention to your process and technology integration.

    Niels Haagsman: Maybe to add to that, the challenge is you can't approach this from an isolated perspective. You really have to look at the end-to-end value chain, both of your own company as well as of the companies you have acquired. That means that you have to bring people together from all sides of the different organizations—both representing business and IT. It's typically a pretty massive effort to plan this out. You really have to pull people out of their regular roles and get them focused on this integration effort.

    I've seen many situations where we successfully did this that actually leads to some amazing results. Not only by combining the knowledge and the experience from all of these different people, but also, it really helps change management effort because a lot of people actually don't know what their counterparts in other departments are doing.Even taking the acquired company out of the equation, it brings people together.

    It also, from an acquired company's perspective, helps to create a shared understanding of why different organizations work the way they currently work. Bringing those perspectives together, forcing those people to work together, is actually a really great thing when you're trying to achieve a successful M & A effort.

    Banoo Behboodi: That's a great point because you can't assume that the acquiring company has the target process because I would imagine that you probably run into this all the time where the company that's acquired may have been nimbler and may have come up with processes and best practices that also need to be considered as you look at that target.

    Coming together as a team to figure out what that target state looks like seems to be the optimal way, first of all, to get buy -in as you said, from a change management perspective, but also to make sure you end up with the best practices right across the organization.

    Niels Haagsman: Correct. This becomes more important if you're pursuing a more transformational deal. Obviously, there are a couple of things that you can do as a company to make sure you're ready to deal with this challenge. One of those things is, especially if you do multiple acquisitions, think about building out your own M&A integration capabilities: building out an internal team of specialists that get responsibility for all of your M&A, but also making sure that you identify the right experts within the right functions to participate in such efforts.

    Number two is making sure that you document your operating model.This is obviously something I run into all the time.Because a lot of companies just didn't go through the effort to put their organizational structure on paper, map out business processes, document their enterprise architecture, their data definitions, their data dictionary, etc., which is extremely critical to build that baseline that you can use to contrast and compare with the acquired companies' operating models.

    In many cases, when this documentation is not available, it just takes a lot of effort to get that documented on the fly, which is just not ideal, and you just lose a lot of time because of that.

    The third one is what I call portfolio management.Making sure that you have a mechanism in place in the organization to address competing priorities between the different M & A efforts that may be going on, but also other changes that may come on the radar, both driven by internal forces as well as external forces.

    Maybe a nice plug to the recent developments in the banking sector.I was recently involved in a deal where that was very much impacted by the, in this case, the fall of SVB.A lot of attention was pulled away from the actual transformation effort that was going on.Being able to keep track of all of that and come up with mitigation plans quickly is critical, and a strong portfolio management function can really help there.

    Interestingly enough, tools like Kantata and other PSA platforms can be super helpful here because they basically allow you to quickly identify who's available, who has what skills, etc. Just a nice plug there for your organization, Banoo.

    Banoo Behboodi: Yes, I appreciate the shout out there. Okay, so you go through part of the integration process. You identify the target processes and the existing technology, and you identify that there are gaps.

    If you do identify that there are technology gaps, in making sure that your future state is effective and efficient, you did speak to patching things up, multiple integrations to make things work, versus making sure you're clear on your target state. If that target state requires that you look at new technology, what does that look like? What is that timing to make sure that you're not taking on too much as part of your integration process ? What are your thoughts there ?

    Niels Haagsman: Yes, quick answer here from a timing perspective, Banoo, is again, as soon as possible. But to your point, there's obviously a timeline that needs to be taken care of. If you look at a typical deal timeline, there is the announcement when a deal gets announced to the market, but that's typically not the same time when the deal actually legally closes. A couple of months later, maybe a year later, depending on what type of company you look at, they formally close the deal. Then there is a period that we would consider post-close. Ideally, what I'd say is do your planning efforts pre-close but do most of your transformations post-close.

    The reason for that is that it just takes too long.You don't want to have your close dates being bogged down by the fact that you want to integrate certain systems. Obviously, you want to make sure that when you close the deal, you've taken care of some of the work.You want to make sure that you have financials consolidated, moved to a single ERP system—You want to make sure that there is a single repository for your employees—and moved to a single HRM system, but a lot of the other systems can technically be dealt with at a later point in time.

    There's all the infrastructure stuff, making sure that the right people have access to the right systems. There's definitely still a lot of work that needs to happen.What I'm talking about is that more of the long-term perspective. It really drives the transformation for the organization.

    The earlier you can start planning that out and have a perspective on the work that needs to happen, typically the better, because it ties back to my answer to your last question—the longer you wait, the bigger the chance that your experts might have run away or be focusing on something else. People might have been pulled away for other priorities.Black swans might happen.It might disrupt your project.Again, the earlier you can get people to focus on this, typically, the better.

    Banoo Behboodi: In a recent LinkedIn live session on that point of technology, if you have to go out there and really look at new technology because you have gaps that your current technology stack does not fulfill post-merger, we did a live session with our CPO and we've resurfaced that in a podcast—episode 39 for those listeners who are interested in listening to that. We discussed what the decision factors are that go into selecting that technology, and ROI doesn't cut it.

    Going back to some of the points we talked about before in terms of employee engagement and impacts on employee retention, as well as customer retention, are some of the other factors, and many others need to be considered.

    I wanted to get your perspective on that as the companies that have gone through this merger and identified they need to go out and look at technology.What are some of the factors that you see being looked at in that decision ?

    Niels Haagsman: Yes, I completely agree with this. It's not about ROI; obviously, ROI is still important. But there are definitely a lot of other factors to consider. You mentioned employee adoption, improving retention, but also focusing on the broader organizational impact here.

    From an approach perspective, I would recommend the following: first, start by framing up the situation.Determine where you are today.Basically, like a lot of things we already talked about, assess your current state, determine any pain points that may exist in your processes, systems, and data.Consider your employee satisfaction with those tools and technologies because that's often the incentive to potentially pursue something new that might improve the organization overall. Typically, you do that by conducting surveys and interviews.

    Obviously, if documentation is available, that's great. But as we talked about, many organizations just don't have that, unfortunately.Then use that to identify your areas of improvement.You come up with a roadmap, prioritize it, etc.

    Also, focus on the impact of doing nothing.What are the consequences if you do nothing ? There might be a potential loss of productivity, competitive advantage, market share.Then analyze the long - term impacts.For example, what does it mean to retain outdated technology, or increased employee turnover, reduced innovation, stagnating growth, etc.Really try to use that to build that compelling case for that new technology.

    Then focus on the benefits of that new technology.What advantages does it have ? Does it increase efficiency, reduce costs, improve communication, enhance collaboration ? In the end, it's all about building out that business case that you want to get to. Does it help with your employee retention, for example, or reduce frustration with the people, etc.?

    Then obviously there's a market opportunity that you need to determine. Particularly, consider vertical SaaS solutions. I think that was also something that was discussed in the podcast that you mentioned earlier. The solutions that can help us in a specific industry to enable end-to-end processes. Maybe not entirely, but at least a large chunk of it, which basically prevents you from having to do a lot of customization and patchwork to make it work for your particular needs.

    Tying into that cultural integration point that I mentioned earlier, make sure that it all fits into your organizational goals and culture.How can it support your long - term vision and objectives ? How can it drive innovation ?

    Then the next steps are to always make sure you focus on change management and then piloting an iteration, consider piloting a new technology within a specific part of your organization, see if it resonates, and then based on that, make a broader decision to roll it out.Those are just some of the things that I would consider.

    Banoo Behboodi: Niels, I've got to admit that I love my job at Kantata in the advisory role I have, but every time I talk to you, your role and what you do in terms of mergers and acquisitions, it's just all so exciting. You've got a world of knowledge, and I just appreciate you being on the podcast and the conversation we've had.

    Just as a side note, I wanted to get to my finale question.As we've discussed, I love to ask about a book that you've read or a recommendation that you may have for reading for our listeners.

    Niels Haagsman: Oh, that's always a good question, Banoo. Throughout my career, there have been many books that influenced me in some shape or form. If there's one to call out, it's an oldie but goldie, it's “The Trusted Advisor” by David Maister. Are you familiar with that book, Banoo?

    Banoo Behboodi: I actually am not now.

    Niels Haagsman: I still consider it—maybe not the Bible, but it's definitely an essential work for anybody working in professional services. It basically taught me early on in my career, that consulting is not only about delivering technical expertise or solving problems for your clients. If you want to be successful as a consultant, in my opinion, it's all about building those strong and deep relationships and earning the trust from your clients.

    It's having that long-term perspective and not only focusing on the short-term transactional aspects that often get emphasized within professional services. It talks about concepts like listening carefully: “It's not about me, it's about you as the client. I'd better spend the majority of my time listening to you and understanding what drives you and what motivates you.”

    It's about being responsive and proactive that really makes you stand out as an advisor. If you do what you say you'll do and even surpass expectations, not promising over delivering, that really helps you to build that trust with clients.

    Then it's all about continuing to add value to the relationships. Thinking beyond what's the question beyond the question like the client might have a certain issue that he wants you to help him out with or her out with at this point in time.But in what context is this question being asked.

    What else is going on ? Not only being there for clients in good times when there might actually be budget to pay you for your consulting services, but also in times when that budget might not be there or the company might go to distress.Still reaching out to the client or to your friend—I consider a lot of my clients my actual friends—and being there to provide them with advice, even though it might not necessarily pay your bill, it will, in the end, pay itself back in the long run.

    That book has just been instrumental for me to become a better advisor.

    Banoo Behboodi: It seems like a book that I should have read by now, considering the years of my working. Definitely on my list now and will be reading it. Thank you for sharing that. Thank you for spending the time. I know you're very busy.

    As always, we'd love to hear from you, listeners. If you have any follow-up questions for myself or Niels, please reach out podcast@Kantata.com. Thanks, Niels, and have a great day!

    Niels Haagsman: Thank you, Banoo.