Mergers and acquisitions driving Baton Rouge technology sector, but is bigger better?
J. Smith Thomas, of BIG Networks, warns growing a technology company through mergers and acquisitions can lead to corporate culture troubles. (Photo by Don Kadair)
Last year was a busy one for technology mergers and acquisitions, with Dealogic reporting $612.9 billion in deals globally. Recent big-name acquisition announcements include AT&T buying Time Warner (pending regulator approval) and Microsoft picking up LinkedIn.
Analysts expected the pace of tech M&A to remain brisk in 2017, and Baton Rouge hasn’t been left out. Early this year, General Informatics purchased fellow local IT firm Teknarus, which itself acquired assets of InfiniEDGE Software the previous spring.
And General Informatics isn’t done, preparing to close on another acquisition, though company CEO Mo Vij declined to provide specifics. Still, he expects to see more mergers and acquisitions in the tech sector, driven by customer expectations and the growing complexity of the field.
J. Smith Thomas, head of business technology consultant BIG Networks, agrees that tech mergers and acquisitions are likely to happen more frequently in the near future. But he’s doesn’t think growing through M&A is necessarily a good idea.
THE IPHONE EFFECT
A decade or so ago, if you wanted a phone, a GPS, a decent camera, and portable music, you might have bought four separate items. Smartphones now give us all that in one device.
IT has been the same way, Vij says, with separate companies selling web development, networking, servers, phone service, printers and the like. Modern technology brought productivity gains over the last two decades, he says.
“Now that every company has [advanced technology], what is the competitive advantage?” he says. “The competitive advantage becomes, how well do these things work with each other, especially since everything is a computer.”
The end user doesn’t typically understand how all this stuff works, and they don’t want to deal with a dozen technology vendors. Customers expect things to work well together, and they’d rather those things came from a single source. A desire to be that source is driving many acquisitions, Vij believes.
And when something technical goes wrong, non-technical people want the IT person to fix it.
“The [customer] expectation is, ‘We don’t understand all this stuff. It’s just IT,’” Vij says. “We can’t be just doing one thing. And the scope is so broad, that no one company can organically do all the stuff.”
Mark Lewis, managing director and partner with Simmons & White, a New Orleans business consulting firm, also expects tech mergers and acquisitions to become more common. Lewis was a successful tech entrepreneur and led the Louisiana Technology Council.
“There is somewhat of a shortage of technology experts in the marketplace,” he says.
Tech leaders often complain about a shallow local talent pool. By combining, companies can create economies of scale and bring people with different skill sets under one roof. Lewis says baby boomers looking to cash out and retire might also be a factor behind some mergers and acquisitions.
Calvin Fabre, founder of Envoc, a Baton Rouge software development and design firm, divides the tech world into things that have an on/off switch (hardware) and things that don’t (software). It’s in the second category where he sees the most M&A potential.
In particular, Fabre sees the increasing overlap between marketing and IT as an impetus for firms to bring those two skill sets together.
“A mobile app for a hospital, for example,” he says. “Is that a marketing effort, or is that an IT programming effort? It’s both.”
Envoc absorbed Maxon Media, an interactive design firm, in 2012. When this story was being written, there was “another acquisition in play,” according to Fabre.
Fabre says he wouldn’t allow his company to even get to “the dating stage” with another firm if he didn’t think their cultures were compatible.
Thomas, with BIG Networks, says there’s a big difference between organic growth, which allows a company to maintain its identity, and growth achieved through mergers and acquisitions.
“When you do an acquisition or you merge, you’re jamming two different cultures together,” Thomas says. “That’s why, I think, I’ve seen companies that have grown through acquisition not be successful.”
Thomas says he’s been part of acquisitions that didn’t work out well. He’s also gone the other way, selling a “substantial amount” of the assets of BIG Networks, then re-launching the brand with a smaller company.
Thomas sees his company as “the go-to guy” for carefully selected customers. He would rather deal directly with another business owner than make a presentation to a management committee. When companies grow, he says, they’re often forced to chase the biggest clients possible.
“While the thought of merging or acquiring is exciting, you inherently become less nimble,” Thomas says. “The big customer’s not always where the money is.”
(Photo by Don Kadair)
“The [customer] expectation is, ‘We don’t understand all this stuff. It’s just IT.’ We can’t be just doing one thing. And the scope is so broad, that no one company can organically do all the stuff.”
—Mo Vij, CEO, General Informatics
Vij, the General Informatics CEO, is working through the culture clashes brought about by his recent acquisitions. For example, his company tends to keep specific hours, while some of the people with the acquired firms are used to working on their own schedule. The latter approach doesn’t work very well when software people are expected to pitch in with customer support during the corporate world’s regular business hours.
At the same time, he’s willing to be flexible, especially with important, key people.
“You have to be reasonable with people,” he says. “You figure it out as you go.”
The market for technology talent has always been tight here. Vij says it’s only gotten more competitive with IBM in the market.
But his company is committed to Baton Rouge. Last year, it broke ground on a new headquarters, part of what is planned to be a mixed-use office park near the intersection of Highland Road and Bluebonnet Boulevard.
General Informatics will be the anchor tenant. The company will be located in the first of the four buildings—a $20 million, 54,000-square-foot glass and steel structure that will be developed before the other three and will, presumably, have room for growth.