The period of turbulence and uncertainty many industries have seen over the last couple of years is now having some interesting flow-on effects. This is true for industries that were negatively affected by COVID-19, as well as those that had the opposite experience. While sectors like hospitality and tourism suffered terribly, IT actually saw growth from organisations that leveraged technology to enable their people to work from home or transform their business to take advantage of digital channels to access their customers more effectively. But the sector is now being impacted in other ways. There has been an increase in mergers and acquisitions (M&A) that can be directly attributed to the influence of the pandemic.
Investment banks, private equity and other Operators are seeing the resiliency in the ICT industry (“COVID-proof”) which is making it a solid investment asset. But what does an M&A mean for the customers of the businesses involved?
In most cases the changed landscape will offer fewer choices for customers. Customers may have previously had half a dozen options, there may now be just two or three. This can result in higher prices, especially if a smaller business is bought by a larger one, and the customer finds themself facing the bigger organisation’s pricing constructs. Less competition in the market almost inevitably leads to costs being driven upwards. There is also likely to be disruption to the relationship and a recalibration of no longer dealing with people they have come to know and trust.
For customers to put themselves in the best position for a potential shake up in their supply chain, they should do their homework and consider all the possibilities. There are several elements they should work through. To begin with, how would they evaluate the relationship with the original service provider compared to other suppliers? If an organisation they deal with is acquired by another company, how will they be affected? For a simple example, if the supplier was a paper supplier, but then merged with a battery supplier, a customer may then need to consider whether to also start buying its batteries from the newly merged entity.
Would this be better or worse for the customer? Would it be more cost-effective to buy both paper and batteries from one supplier? Would it have more leverage or negotiating power? What would this mean for its relationship with its traditional battery supplier?
It’s also sensible to weigh up the options of using a specialist provider versus the one-stop shop. If a specialist merges with another company, does this affect its ability to be the best at what it does? Would a consolidation water down its unique offering and degrade it?
Finally, the customer should also keep an eye on the bigger picture and take note of what is happening in the ecosystem of their supply chain. If every company in one particular sector is migrating to a particular type of supplier because it’s providing a better level of service, the customer may wish to follow suit to ensure that it’s not left behind.
It’s vital for customers consuming services from Service Providers to start having these conversations now. They should be talking to their providers, asking them if an M&A is on the cards. They should ask the obvious questions, such as: is their supplier thinking about buying? Or selling? And, if so, why and what services will they be selling in the future? What would it mean for the people involved, the services offered and the costs and fees? Are they doing this for scale or to increase product offering, does that align with the customer’s own future plans? By gaining a clear picture of all the possibilities, Customers will be in the best position to smoothly transition through any M&A’s their Service Providers may undergo.