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Best Practices

What To Do If Your Software Vendor Gets Acquired

May 30, 2017 by Venminder Experts

You did your due diligence on your vendor, you're going about your day to day duties, and suddenly you're notified that your software vendor is being acquired by another. Today, companies merge suddenly and frequently for a variety of reasons - some of those reasons can be a really good thing but some can have unintended consequences. So, how do you keep your financial institution from being considered collateral damage?

How Will The Acquisition Affect You?

Even in the best of cases, having one of your vendors acquired generally does involve some disruption to your institution, your staff and your processes. It can be difficult to foresee the true outcome of what the merger will mean - was your vendor's software being purchased for the technology or is it a purchase to discontinue the product entirely, or to transition you to a new product? What if you don't want change?

If you’re a vendor manager, particularly one who has been through this before, you know it’s time to break out the shovels – not to clear snow, but to dig into the due diligence. You may be asked some questions in your following exams about what you did and how you reacted.

Do Your Due Diligence On The New Vendor

Do your due diligence and evaluate the acquirer fully. This may also be the right time to evaluate whether it is the right vendor and fits your needs (needs change all the time).

Here's some examples of due diligence to do's now that this acquisition happened:

  • Think about and list out questions you’ll want to ask and when you can. These could include:
    • What were the reasons behind the acquisition?
    • Is there a roadmap for the product post acquisition?
    • What are the future plans for the acquired company's leadership, account management and customer support?
    • If you're being moved to a new software, what is the estimated cost, impact and timeline?
    • Ask to speak to several of the acquirers’ current customers so you can find out:
      • What is the company like in meeting deadlines?
      • What is their customer service like?
      • What is the reputation of the acquirers own software or services? Are there bugs and patches? How often are they fixed? 
  • See if you can set up a time to speak with management.
  • Completely refresh your due diligence with the lens of what you need to know about the companies who are new to the relationship and what the resulting company may look like.

Don't Become The Victim

Whatever the reason for the acquisition, you don't want to become victim to it.

  • What if the product you use was to cease to exist?
  • What if their customer support or services decrease?
  • What if they increase prices? 

If one intent of the merger is to reduce costs, then it may 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 are 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 development.Will 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. 

Active Monitoring Of The New Vendor

After the acquisition, it's important to monitor the performance of your new vendor. 

  • Is your vendor still performing at the same level? 
  • What has the new vendor committed to you? 
  • Have the vendor's core competencies changed?
  • Have they reduced staff or replaced key management with less experienced people? 

Have An Exit Strategy

Acquisitions can potentially get messy. You may need to take your future into your own hands if it goes sour. Plan well in advance and, if there's the opportunity, have a meaningful discussion with their management team about what the changes may mean. 

Download Free Venminder Due Diligence Document Samples

Venminder Experts

Written by Venminder Experts

Venminder has a team of third-party risk experts who provide advice, analysis and services to thousands of individuals in the financial services industry.

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