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Partner Insights

M&A Amid Face Masks: Lessons Learned During COVID-19

Acquisitions are a key part of Cognizant’s corporate strategy, and while we were fortunate that IT services continued to boom over the last 18 months, the demand presented us with a dilemma: How do you buy companies remotely?

During an unprecedented global shutdown, many of us started to buy clothes and groceries online, but the business of mergers and acquisitions is more challenging. M&A is part science, part art. How could we convert the complexity and the necessary component of emotional intelligence needed when acquiring companies to the WFH environment? Equally important, how would the type of businesses we typically buy — small to midsize companies that are often founder-run — virtually navigate the emotional process of selling their companies while keeping themselves stable in the pandemic?

Here are four lessons we learned over the last year and how they’ve influenced our approach to M&A in the emerging post-COVID economy:

1. Keep the human factors top of mind.

IT services businesses are people businesses. It’s important to understand what a company does and how it has evolved, as well as its culture, what motivates people and how they work and make decisions. Getting a feel for that emotional fabric typically happens through both formal, in-person meetings and the spontaneous conversations that occur in hallways after meetings or walking to the car after dinner. We wondered how we would gain a mutual understanding of each other’s business when we were unable to meet directly.

2020 takeaway that we’ll use going forward: Videoconferencing is surprisingly effective for getting to know a company. With some advance planning and by specifically reserving time during virtual calls to ask questions and get to know each other, our team was able to develop a far better feel for companies than we had anticipated. There’s no replacement for in-person site tours and dinners, but the combination of WFH and videoconferencing opened a new, revealing window into each other’s worlds that approximated on-site closeness. We were invited into people’s home offices, which sometimes meant their kitchens or bedrooms, met each other’s children and pets, and were privy to whatever collectibles and artwork appeared in their background. We plan to keep remote tools a permanent part of the acquisition process going forward, enabling us to find out more while traveling less.

2. Look for resilience and adaptability.

The pandemic underscored the reality that numbers are only part of any company’s story. Smaller companies are vulnerable in all of the classic ways like tight cash flow and challenges in investing and hiring. And 2020 encouraged us to understand on a deeper level what companies were going through and the tactical choices they were making to cope, such as how they were handling client relationships.

2020 takeaway that we’ll use going forward: Adaptability has enormous business value, especially in IT and professional services. Demonstrating resilience through a crisis like the global pandemic sends a powerful message to prospective buyers like us. The decisions companies made in 2020 tell us a lot. Were they able to retain key clients? How did they treat employees during the slowdown? Were downturns in financial results a sign of weakness, or part of a strategy to better position the company for longer-term profitable growth? Was there a smooth transition to remote working and collaborative tools? The answers give us fresh insight into whether a company is set up to adapt.

3. Make deliberate use of technology.

Nothing said business in 2020 like WFH and videoconferencing. But technology isn’t about replacing one medium with another. That is, a two-hour in-person meeting of 10 people doesn’t necessarily translate to the same configuration on Zoom. By being deliberate about how we use technology, we increased our productivity. For example, when last April’s lockdown forced us to cancel travel for two days of meetings and on-site tours that involved 15 people, we moved the events online but also restructured the agenda, opening the virtual sessions to a wider group of people and enabling easier flow in and out of meetings and periodic debriefs. We also make a point now to schedule prep meetings and debriefs that used to occur ad hoc in coffee shops before meetings or in the cab on the way to the airport.

2020 takeaway that we’ll use going forward: Even as international travel begins to re-open, we believe the strategic, deliberate use of virtual platforms will remain as a key tool for the high-stakes interactions that are central to M&A. These include executive interactions early in the process as well as larger “town hall” style meetings to welcome employees after an acquisition announcement. Before the pandemic we were concerned that large virtual meetings would be ineffective and impersonal. We discovered the opposite can be true: they can be organized at short notice, more people can attend across time zones, and live Q&A is easier and more inclusive.

4. Acquisitions are the long game.

Celebrating the closing of any deal is a big moment, but the truth is it’s merely a transaction, and the real work follows. That is, a joyous wedding day doesn’t guarantee an enduring marriage. Merging two companies requires a mutual fit, and the pandemic required us to double down on key questions, like “What can we do together that we are unable to do separately?” It disciplined us to take extra care from the very first meeting to build the foundations for a productive relationship and develop plans for creating value by melding operating models and cultures. The limitations of the pandemic reinforced for us that trusted relationships remain crucial and require more effort in a virtual setting.

2020 takeaway that we’ll use going forward: Remote sessions require a concerted effort to establish the bonds that will set up our two companies for the long term. With many of us in back-to-back virtual meetings all day, it’s vital to respect the importance of the acquisition process. No one wants exploratory meetings to feel like just another entry on everyone’s calendar. Simple gestures can be helpful, such as blocking time at the start of those early, sometimes stilted calls to get to know each other. And a little extroversion can go a long way to create some energy. In a virtual environment, when the masks are off, there’s an opportunity to bring out more of your personality, which can break down barriers. The more authentic we can all be, the easier it is to establish bonds and assess whether people, teams and companies belong together.  

In the end, the pandemic’s shared experiences became a paradoxical asset: Isolated and reliant on technology, we had to collaborate with potential acquisitions and thus together reshaped the M&A processes, in ways that benefitted both companies. The experiences have broadened our perspectives and introduced new ways of working, and they’ll remain a permanent part of our strategy and M&A approach, with or without travel in the new hybrid business world.

Steve Burden is Vice President for M&A Strategy and Execution at Cognizant Digital Business & Technology.

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