Post-acquisition exec departures 'inevitable'

Company founders tend to leave to start new businesses or enjoy new-found wealth, but any impact on acquiring companies should be seen in light of their overall objectives, observers note.
Written by Jamie Yap, Contributor

Top executives departing the companies they founded after being bought over are a usual occurrence. Whether this is a positive or negative development, however, should be evaluated on whether these executives would have continued contributing to the parent company's overall growth, say industry watchers.

Anthony Miller, managing partner at analyst firm TechMarketView, said it was inevitable that top executives from acquired companies part ways after they have been bought over. This is particularly so for founder-led companies, as these executives would likely want to start new businesses, he added.

"It's far more usual to see the top guy or team leave within the first anniversary [of the acquisition] and go do something else. Think about it, CEOs become CEOs because they want to be leaders, not followers. Other than a handover period, it will not take long for them to leave the business, usually by choice," Miller said.

Additionally, an entrepreneur would not want someone else telling him how to run the business he had created and grown after the acquisition, he said.

Barbara Gibson, professor of global management at Hult International Business School, agreed. In the IT field, founding executives of acquired companies are often young, and now richer after getting bought over, want to enjoy their new-found wealth. They would not necessarily be happy or comfortable in a more corporate environment after being accustomed to being their own boss, she said.

For this reason, it may not be in the company's best interests to keep these executives beyond a minimal period of transition, she noted.

Parting ways not always bad
Asked whether the departures of founding owners or teams would hamper the development of the acquiring company, Miller said this depends on various factors such as its goals and what it hopes the newly-bought business unit would do.

He pointed out that companies generally buy other entities because they want to add value to their existing product portfolios, and this value lies in the target company's intellectual property (IP), especially if it is in the software or hardware business. So if the company loses key people integral to the IP, then it would be compromised, the analyst said.

As such, it is up to the parent company to make sure it identifies the value of the company they bought and what needs to be done for the value to be realized, including retaining or letting go of founding executives, he suggested.

Raj Sundrason, vice president of human capital management at SAP Asia-Pacific and Japan, said for the German software company, acquisitions help accelerate its competitiveness in a particular part of its portfolio.

"The intent is to harness the innovation, leadership, and DNA of these organizations to provide our customers with a more holistic offering. We not acquire companies as means of taking costs out of our business," Sundrason stated.

Referring specifically to its SuccessFactors buy last December, the vice president noted that no redundancies have been made. Lars Dalgaard, who founded the company in 2001, has since been placed in charge of SAP's new cloud business unit as well as appointed to the executive board.

Hult's Gibson added that every acquisition is different, and executive departures should not be generalized as positive or negative. Sometimes, people leave after the maturing and evolution of the organization post-acquisition, while others move because they may not like the changes imposed by the new management team.

The parent company may also find it difficult to manage and motivate the incoming leadership team, she added.

Evaluate suitability
Karl Chong, who co-founded Singapore daily deals site Beeconomic before it was bought over by Groupon in December 2010, is one executive who stayed on with the new parent company.

He told ZDNet Asia that he continued on because after the acquisition, Groupon valued the management team and made him sign on to be the CEO of the local unit. "So really, I had no choice," Chong stated.

He recommended that for companies wanting to retain founding executives, one factor would be to give them the same level of autonomy to innovate quickly and operate as though the unit is still a startup.

However, Chong added that once the parent company reaches a certain level of scale and maturity, it will need to reassess the suitability of the existing top management executives, including those from acquired companies, to bring it further along the path of development.

"Entrepreneurial skills involved in starting up a company don't necessarily translate to skills required to manage a [bigger] one. Many entrepreneurs fail to manage the growth or lose interest in managing a large company that is now slower to innovate," he explained.

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