It’s 10pm; Do You Know Where Your Software Vendors Are?

In the software business, there has been a wave of consolidations over the past few years. In the CRM software space alone, there have been over 20 acquisitions in the past 36 months. The research house Gartner expects several more through 2007. What happens to you, the customer, when one of your software vendors gets acquired? Is the software that you’ve invested time and money in going to be around in the medium to long term, or is it time to look for a new solution. If you are faced with this situation, you need to look at the rationale for the acquisition. Is the acquirer a larger software company looking to add new capabilities or technologies to their portfolio, or are they looking acquire a customer base for their flagship products? A review of what the company has done after past acquisitions may be a good indicator of what is in store for the future. Have they maintained their brands or is the future uncertain?

In the last year, there has also been a significant interest in software by private equity companies such as Francisco Partners, Golden Gate Capital and Silver Lake. So, what happens if your software vendor gets acquired by a private equity company? Private Equity companies have a 4-5 year timeline to recoup their investment. At that time, there will be some exit event – another sale, an IPO, etc. This means that code base will change hands again, which could mean another change in strategic direction.

The reality is that with more and more M&A activity, the “business of software” could have a significant impact on the future of your business. Software is one of those products that, like it or not, you will have a lasting relationship with the vendor. You need to actively monitor the business moves of your software vendors; if something changes, you need to make sure that it won’t have a negative impact on your business.  If you thisnk it will have a negative impact, you need to start considering other options.