Acquisitions and mergers aren’t what you see every day within the Nigerian startup space, but it does get quite exciting for companies involved when they happen.
Newly-merged companies potentially gain from economies of scale, greater financial resources, expansion, and even a fair share of media attention.
But beyond the corporate strategy, there is a side to a merger or acquisition that makes it such a borderline disruptive, and sometimes traumatic, event.
A tale of two companies
In December 2019, a merger was finalised between HUB8 and Nigerian web hosting company, GigaLayer.
The deal was significant not because the legacy company was a subsidiary of a Czech Republic-based, Russian-owned web hosting company that is Africa-focused, but because all of its operations were moved to GigaLayer, the acquiring company.
In the course of server migration, however, customers (especially those from HUB8) experienced several challenges accessing regular service on the GigaLayer platform due to server downtime.
Although quite an unpleasant occurrence, there was no element of surprise to it. Post-merger integration is an incredibly challenging process for the companies involved.
Similarly, last year, Access Bank and Diamond Bank announced a merger that resulted in a transfer of all assets, liabilities, and undertakings of the latter. The post-merger phase was characterised by an occasional slowdown of banking services, particularly for online transactions. Account holders with both banks who had the same name were required to change their names on account of the merger. And some account numbers of former Diamond Bank customers have changed altogether.
Regardless of how differently GigaLayer and Access Bank are structured, their individual merger deals show a similar pattern in the sense that while one company absorbed the other and remained in existence, the other involved was dissolved.
So what are the chances of a merger integration with minimal impact on a business’ core or processes?
Technology and product effect
To put things into context, it is instructive to look at the merger and consider the technology and product as two separate core entities.
While speaking with Techpoint, Segun Adeyemi, former co-founder of fintech startup Amplify, noted that the chances of startups taking major hits from post-merger integration are lower if it is a technology acquisition.
Adeyemi, who was the co-founder of Amplify until it’s the acquisition by OneFi, Carbon’s parent company, emphasised that much integration wouldn’t need to be carried out if the core of the company isn’t centred on the product.
“We are both very technical in nature, so ours was, to a large extent, straightforward. It made our goals align in terms of the product aspect as well,” he said.
However, as with GigaLayer, things get much more complicated when it’s product integration.
“Frankly speaking, it’s impossible for us not to have changed anything. Technology and product-wise, the difference was massive for both companies. The best we could do was to ensure that the legacy products at least continued without major interruption,” explained Ahmad Mukoshy, CEO GigaLayer.
Managing customer experience
A lot can go wrong during the process of a merger or acquisition. However, many of these deals fall short of expectations because of a failure to understand the importance of communicating with customers.
Aware of the challenges with integration, Access Bank — the acquiring bank in the Access and Diamond merger — announced beforehand that a few customers would experience occasional service disruption.
Because of the delicate nature of a merger phase, even the slightest operational change can have a significant negative impact on customers who are mostly uneasy due to the change and keenly focused on how the new relationship impacts them.
“We had a challenge with customer expectations in part because we literally had an assumption of what customers would expect from us,” explained Mukoshy.
Nevertheless, there are ways to reduce customers’ apprehension during this phase.
Adeyemi advised that the first thing to do is respectfully carry the customers along.
“Especially when there is going to be a system shut down or migration to a different server, there needs to be communication with customers, giving them enough time to adjust to whatever change is coming or to switch preferences if need be,” he explained.
And where the core is technology, multiple layers of backup infrastructure able to communicate with each other need to be in place.
“Most important of all is that the business has to be readily available to solve any arising issue, as it builds customer trust,” Mukoshy noted.
Nigeria’s startup space is growing rapidly and it is clear from the sheer size of funding coming in that businesses are increasingly looking to expand. But startups looking towards a merger for whatever reason, including expansion, might as well have this in mind.
NEW: Nigerian startups raised $377m in 2019, more than twice what they did in 2018. Find out more when you download the full report.
Early-stage startup? The 2nd cohort of Techpoint Startup School is coming in March. Apply now.