We all know M&A isn’t easy. Integrating merged or acquired firms is a massive undertaking and getting the payoff is far from certain in any industry. That’s certainly true in the Software-as-a-Service (SaaS) sector, which our analysis has found has higher M&A failure rates than other types of companies. Why? What’s so different about a subscription-based business model? How can acquired SaaS company growth be boundless and healthy prior to acquisition, yet fail to meet projections for growth afterwards?  

The SaaS business model is very different 

In our experience, companies whose SaaS acquisitions don’t live up to expectations often struggle with several key differences between subscription-based business models and traditional product-based ones—and that can lead to decisions that mute the strength of the SaaS target after it’s integrated. 

For instance, new metrics have evolved to track a subscription business’s fundamentally different business model—especially when it comes to financial accounting. CFOs need to focus on metrics that will measure and drive desired customer behavior—including deferred revenue (both in dollars and months), churn rates, net new subscribers, and annual contract value. Other key metrics include upsell/cross-sell, adoption rates, trial-to-order conversions, and customer health. By contrast, in a unit sales model, a company would want to measure days sales outstanding, inventory on hand, days to deliver, and one-time revenue bookingsnone of which provides insights into the health of a subscription business. 

Another potential stumbling block is leadership rewards. Compensation plans are typically structured around a specific type of sales motion and KPIs tied to how the business operates. Considering these KPIs change drastically under a subscription model (as just noted), acquiring companies must reimagine how leadership rewards are tied to corporate success. 

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Leading practices for successful SaaS M&A

Companies that successfully execute SaaS M&A strategies overcome these and other hurdles by consistently following a few common leading practices. 

First, they develop an integration playbook that considers the journey blueprints that define the customer experience in a SaaS company and documents specific interaction points in the customer journey. Understanding how the acquiring company implements these journey blueprints, and where it has gaps in capabilities, will provide a roadmap to integrate the current and future acquisitions. Think about how subscription model customers cancel service. The integration playbook should detail what back-end systems need to be configured to handle auto-cancellations, what marketing systems should kick-off retention campaigns, what discounts are pre-approved to recall a client, if portions of the platform need to be deprovisioned at cancellation time, and what customer data should be archived or purged from the system in the case of cancellation.  

Second, successful acquirers closely coordinate the acquisition team and business unit. Early and frequent planning conversations between the acquisition due diligence team and the operational business units will streamline integration planning, stakeholder buy-in, and ROI due diligence. True, it’s often difficult to include all team members in the early stages for confidentiality reasons. But coordinating the players to create playbooks will prepare the operating business units for an impending integration project. And structuring these conversations around customer experience journey blueprints will anchor outcomes with outside-in perspectives. 

Finally, they implement customer-centric bonuses and rewards. Organizational models and rewards structures are materially different in acquired SaaS companies. Understanding how leadership is rewarded and measured, identifying where misalignments and friction exist, and determining how to realign these to subscription model KPIs are key to generating expected outcomes from a subscription model.  

What’s the value? 

By following these best practices, companies can prepare their business units, tools, processes, and people to integrate acquisitions. Doing so: 

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Eliminates integration delays 

With playbooks and processes for subscription models, teams understand what to measure, how to optimize, and how to scale. Enabling them to move swiftly and efficiently. 

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Accelerates return on investment 

Having playbooks prior to purchase, the team will understand how business is measured, levers to scale the business, investment for scaling, and value that will ensue. 

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Enables confident execution 

Subscription model playbooks and value trees enable companies to scale an acquired SaaS business quickly and methodically, giving confidence to execute with certainty.

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Despite its challenges, SaaS M&A doesn’t have to be doomed to failure. It just takes a different approach to the process that recognizes the fundamental differences between SaaS and traditional businesses—and what’s critical to scaling a SaaS business to generate the desired returns. 

Disclaimer: This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. 

Kevin Stoll

Senior Manager – Technology, North America

John Goble

Senior Manager – High Tech, North America

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