President and CEO Vivek Gupta joined Mastech Digital with the clear purpose of helping the technology company transform beyond staffing. The idea was to organically grow the existing staffing business, while acquiring new capacity. So, with the help of investment bankers, Mastech considered nearly 50 data analytics companies.
Gupta jokes that, “we looked at 47 companies, we dated 12, we proposed or semi-proposed to three, and then we ended up marrying one.”
That was one was InfoTrellis, which Mastech bought for $55 million in 2017.
It was a very thorough process of selecting and deselecting companies, but Gupta knew from past experience that if you spend more time before the purchase, you get better returns down the line. Mastech also was thorough during the diligence process, which doubled from its initial plan of three months.
Gupta, who considers the InfoTrellis deal very successful, says Mastech is in the early stages of determining what data analytics company it should target next. Here’s his advice for other buyers.
Agonize, right in the beginning, about why you want an acquisition. I’ve seen organizations get approached by somebody that says, ‘Would you like to acquire this company? This company is for sale, or the founders are actively looking to make an exit. These are the qualities of that target.’
And people say, ‘Yeah, that’s interesting. Let’s look at that.’ That’s not a bad thing, but that’s reactive.
Spend time trying to figure out, why do you want that acquisition? Be very clear and structured in the way that it is going to be. Are you going bulk up? Are you going to add new capabilities? Are you trying to diversify? Are trying to realign the organization? You need to think all those things through.
In due diligence, half your due diligence team should be looking for reasons why you should acquire this company, and the other half should be looking at reasons why you should not acquire — and the second part is more important.
As a CEO, I need both voices to be brought to the table. Otherwise, I could get very easily sidetracked into believing that this is the perfect one, and we all know that in M&A, the movie very rarely turns out to be the same as the trailer that you see.
When you’re structuring the deal, it’s very important that it is a win-win for both sides. If you, as an acquirer, end up feeling that you’ve got everything you wanted and managed to get a really sweet deal, but the person who’s selling is not getting a sweet deal, it is not going to work out.
It’s truly a marriage of the two. Both sides have to give, and both sides should feel they have won. Otherwise, disengagement can set in after you acquire the company. If you have an earn-out period, and the management team and/or founders stay on, they won’t be truly engaged. They won’t feel motivated, and the feeling that they got the rough end of the stick keeps playing on.
You have to get the best for your organization, but don’t tighten the screw so much that you start breaking things on the other side.
Often, organizations are so busy with due diligence and closing the deal that they don’t think the integration through. The first 100 days are critical for both sides.
You may need external help. The same team, which is doing due diligence and negotiation, cannot spend time thinking about the integration plan when they totally are consumed by contracts and discussions, work that is going on trying to close the deal on a specific date.
When the integration plan is being created, it doesn’t have to be a completely different set of people making the plan. The integration team can extract ideas and thinking from everybody, including the team trying to close the deal. But the deal-closing team should be using very little of their time creating spreadsheets, having discussions and building questionnaires for the integration.
As the acquisition closes, the integration starts immediately. With the help of an external agency, we managed, week-by-week, whether everybody had done what they were supposed to do. I think we achieved almost 95 percent of what we had planned within the first 100 days.
The integration was done quickly, but how much we changed was not that aggressive. We didn’t want to kill the DNA of the company that we acquired.
Communication will be part of the integration plan, but you have to be very clear, especially for companies like Mastech, which is listed. You want clear communication to investors, customers and employees. You should be as honest and transparent with them as possible.
There is no shortcut to building strong chemistry, especially with the management team, if there is an earnout period involved. Whoever comes on board from their side, treat them with a lot of love and tender care. TLC is needed because those people, more often than not, were founders. They were running the company without having a boss. Now they’re going to be part of your management team. They may start reporting to you, as a CEO. You need to be respectful of the fact that, for them, it’s a big change.
If you do it well, if you are sensitive to those things, it goes a long way in the transition. Having an integration plan is a spreadsheet, but actually making the integration happen, a lot of it depends on how sensitively you manage relationships.
