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3 Areas to Watch If Your Vendor Is Acquiring Another Vendor

May 31, 2017 by Branan Cooper

Today, companies merge suddenly and frequently for a variety of reasons - some of those reasons can be a really good thing, but some can introduce a variety of risks that can cause performance to fall short of expectations.

Here are three areas to be aware of and monitor as your vendor acquires another.

1. Possible Financial Consequences

Acquisitions require a significant cost. While mergers can eventually result in cost-savings by eliminating redundancies, the process of merging two companies is still costly - for example, legal fees and consulting fees.

If your vendor needs to cut costs, it can have a domino effect.

  • The fastest way to cut cost? By cutting staff.

  • What follows staff cuts? Declining service levels. And, that's not just defined by how long it takes to answer the phone to call you back.

  • Cost reductions in the operations will also likely mean a decrease in staff who are charged with maintaining the security and integrity of the system. That's when your financial institution could find itself at a heightened risk.

  • You'll likely also find a significant reduction in spending on product developmentWill the software that you are using become a legacy product that will be sunsetted? This could result in bugs, unresolved issues, long waiting periods, downtimes and more. 

2. Decrease In Innovation and Development

If your vendor acquires another vendor, funds may be going towards the acquisitions to maximize their profits, which can ultimately be at the expense of developmental budgets. This can mean delayed software enhancements (often needed by financial institutions to keep up with changing regulations), or as mentioned above, lead to security issues like bugs, unresolved issues and delayed patches. 

3. Integration Challenges

Two companies can have completely different cultures. While both have a place, one of the biggest challenges many merging vendors find is in integrating them.

During a time of uncertainty there can also be distress among employees. Roles that overlapped between the firms can cause competition internally. Layoffs or departures are common, which can have an ultimate impact on the customer service and support you receive. There is also the risk that the vendor ends up with surplus employees in some departments adding unnecessary cost. 

10 Tips For What You Can Do

  1. Watch for key management departures – and determine if the new team has adequate experience to do the job well
     
  2. Be alert for changes in responsiveness or support
     
  3. Be alert for fluctuations in service levels
     
  4. Watch for if your relationship manager suddenly changed
     
  5. If publicly traded, did the stock market react favorably or lots of bad news speculations?
     
  6. Carefully consider your alternatives – can you speak with someone at the company to have them address any questions or concerns? Are there additional steps you may need to consider?
     
  7. If things go well, still take the opportunity to update your due diligence documentation and risk assessment of the relationship
     
  8. If things start to go poorly, take the time to update your exit strategy, just in case its necessary
     
  9. Consult experts in your company and elsewhere, if needed, so that you make appropriate decisions
     
  10. Keep your senior management team and board well-informed and seek their input
 
Download Free Venminder Due Diligence Document Samples
Branan Cooper

Written by Branan Cooper

Branan Cooper is the Chief Risk Officer at Venminder. Branan has nearly 30 years of experience in the financial services industry with a focus on the management of operational and regulatory processes and controls—most notably in the area of third party risk and operational compliance. Branan leads the Venminder delivery team as the third party risk management subject matter expert in residence. Branan also serves as an industry thought leader. He's a member of InfraGard and the Professional Risk Management Industry Association (PRMIA). And, he was selected in 2018 as an advisor to the Center for Financial Professionals (CEFPro) and board member for the Global Sourcing Resource Network (GSRN).

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