Asia's Source for Enterprise Network Knowledge

Friday, April 25th, 2014

Vendor selection and management

Merger madness: What to do when your infosec vendor gets acquired

By Edmund X. DeJesus

Perhaps the one word you hate to see associated with your security product vendor is 'merger.' As a customer, the word 'merger' probably evokes the same feelings as the word 'stepmother' when you were a kid reading fairy tales. You just can't escape the sick- to-your-stomach feeling that bad things are about to happen, and that you're going to be the innocent Cinderella of events out of your control.

Still, mergers are a fact of life in an industry as young and immature as information systems security. Gone are the days when vendor companies could pursue their development plans in leisure and vigorously fight off any attempts at merger or acquisition. Today, companies merge suddenly and frequently for a variety of reasons. They may seek to acquire new technology or product from another company rather than develop it themselves; they may want to firm up their product line with complementary products; they may wish to consolidate for lower administrative costs and increased profits; or they may simply want to buy out the competition. There may even be reasons that seem to make sense only to the company's management.

If you need an example of just how volatile the infosecurity market is, consider the fate of firewall vendor Abirnet. In late 1998, the company was acquired by Memco Software Ltd. In March 1999, Memco was acquired by Platinum Technology Inc. Four months after that, Platinum was acquired by Computer Associates. Now, one would assume that CA, an established fixture in the high-tech world, is where the feeding frenzy would end. But don't bet on it. As large as CA is, there are plenty of hungry mega-companies on the prowl for just the right company to complete their technology portfolios.

Size matters

While it's difficult to foresee what the outcome of a merger will be for the customer, the relative sizes of the merging companies can help you predict some of the effects. Suppose, for example, that a large company acquires a startup company, a common scenario in the buy-it-don't-build-it age. 'The larger company has more money and more people,' says Marc Camm, vice president of marketing for Houston-based BindView Development Corp. and a participant or observer in several corporate mergers. 'That larger company may be able to devote more people to you. They may also be able to ignite faster development of better versions of the product you use.'

Of course, there are also scenarios where all the larger company wants is to acquire the smaller company's technology. Consequently, they may discontinue the product entirely or incorporate its capabilities into one of their own products, forcing customers to transition to a new product.

The situation is usually different if a medium-sized company is merging with a small company, or if a large company is acquiring a medium-sized company. In such cases, the customers of the smaller company are usually important to the larger company, Camm says. It is to their advantage to retain that customer base and add it to their own. For this reason, the original product is likely to continue. In fact, the customers of the merged company may benefit from the resources and direction of the combined companies.

As an example, Camm points to the merger of Netect and BindView, during which he was an employee of Netect. BindView was interested in Netect's products and technology, and BindView had technology that Netect could leverage. The result was a good synergy between the merged companies, enabling them to bring products to market faster for their mutual customers.

Whatever the reason for the merger, you don't want to become the victim of it. You don't want the product you use to cease to exist. You don't want support or services to fall off. And you don't want prices to rise. Unfortunately, any or all of these are possible outcomes.

Reacting to change

The first and most important thing to understand is how any changes in product, price, service, product upgrade, vendor contact or contractual agreements can affect you, and what you can do to protect your investment.

Product

One of the main reasons vendors merge is so that one company can enhance its product line, especially when one product fills a hole in the merging company's offerings. 'Vendors often want a more complete set of products that they can offer to the same profile of customer,' says Katherine Hutchison, vice president of marketing for Issaquah, Wash.-based CyberSafe Inc. (www.cybersafe.com) and a veteran of several corporate mergers. In such a case, you can be confident that the product you use will continue to be supported. The acquiring company isn't going to abandon the purpose of the merger once the merger is complete.

However, that may not be the purpose of the merger. If it's a straight technology grab by a large company, or one competitor buying out another for market leverage, there may be little or no interest in continuing the acquired product in any form. The customary decision in such a situation is for the larger company to keep its product and customers, and terminate the acquired product. But not always.

A different outcome occurred when enterprise security vendor Axent Technologies (www.axent.com) acquired single sign-on solutions firm PassGo in March 1999, says David P. Sarjantson, Axent's technical product manager. PassGo had its InSync password synchronization facilitator product and its SSO single sign-on product (based on InSync). Meanwhile, Axent had its Enterprise Security Manager (ESM) product in an overlapping space. Although Axent was the larger company, PassGo had a larger market share. The decision was to continue with PassGo's products and begin phasing out ESM -- a process that continues today.

Axent has been meeting with all ESM customers to provide a migration plan. The transition is simplified somewhat by hooks between certain PassGo components and ESM. 'Our aim is protecting the customer's investment,' Sarjantson says.

Price. The merged company may use a different, lower pricing structure than the original company did, which would be good news to the customer. Further, the merged company may be able to sell the product to a new, wider customer base, which may lead to lower prices. On the other hand, it could be that the new pricing structure could be higher. However, the likelihood is that prices will remain stable or even decline after the merger.

Service. If your vendor was a small company, perhaps one that was understaffed to the point where service was spotty or nonexistent, the merger could translate into better service and support. Merging with a larger company, with more service staff, may give you access to more -- and more knowledgeable -- service people. However, if one intent of the merger is to reduce costs, you may find yourself with worse service. Also, if you had a good relationship with a particular support person, you might lose that relationship: They might be fired or reassigned.

Product upgrades. The new, larger company may be able to devote more resources to developing new and better versions of the product. The new company may have access to technology that would significantly improve the product. Those revisions might even come faster than if the original company had retained control. Alternatively, it might be part of the merger plans to end development entirely for this product. Or, they may be taking the product in a direction you're not interested in. Consequently, a parting of the ways may be in your future. Still, unless the decision is to terminate the product entirely, you generally can depend on continued and possibly accelerated development and improvement.

Vendor contact. If you were one of the few customers of a small startup, you may have enjoyed cozy and informal contact with a specific person. After the merger, all that might change. Mind you, that change could be for the better: You could end up with more accessible people to contact. Also, they might have a wider range of experience. However, there's always the risk that you could lose that original, valuable contact and be tossed to a pool of impersonal, partially trained telephone agents.

Contract agreements. With each product you purchase, you probably have a contract or licensing agreement for products, services and support. What does that mean when the vendor merges with another company or ceases to exist legally? The outcome could be positive, especially if you've had a testy relationship with the original vendor. The new, larger organization may have simpler, more streamlined operations. Dealing with a larger, less skittish entity may be a plus as far as your peace of mind goes. However, the larger company may have little flexibility in comparison with your original vendor. Their standard operating procedure may be a little too standard for your taste.

When you find out that there's a merger in the air, it's always a good idea to unleash your lawyers and have them go over your contract agreements. You also need to be clear about your options in keeping or modifying those agreements with the new merged company. 'Generally, the contracts survive, and the acquiring company inherits the obligation, usually because the contracts have explicit language to that effect, but sometimes simply by the defaults in the general law of contracts,' says Curtis Karnow, a partner at the law firm Sonnenschein Nath & Rosenthal and a specialist in Internet and e-commerce law.

But there are exceptions and complications to this general rule, adds Karnow. 'Some contracts block the transfer of the obligation to the new vendor.' Even so, it's in your best interest not to adopt a litigious attitude. The more calm, informal and easy you make your relations with the new vendor, the better. The outcome you do not want is to end up with a court date instead of a dependable product.

Resistance is not futile

Clearly, the outcomes of a merger lie on a continuum ranging from nice to awful. The next question is: What can you do to influence matters in your favor?

An impending merger involving one of your vendors probably fills you with trepidation. Images may come to mind of hordes of Borg drones intoning, 'You will be assimilated.' After all, you have no control over the merger process or the ultimate effect on the products you use.

If you feel this way, you are not alone. However, 'victim' may not be the best role to assume during the merger. There are a number of concrete steps you can take to avoid becoming road kill on the drive to merge. 'You may well be able to influence the eventual fate of the products you want to continue using,' advises CyberSafe's Hutchison.

1. Knowledge is power

First, you need information. As soon as you become aware of the possibility of a merger, it behooves you to begin gathering information.

Contact all of the merging parties and request -- not demand -- whatever information they have about the merger and its possible effects on the products you use. Take advantage of all contacts you have with either company, including sales reps, support people and more informal contacts. 'It is not out of line to contact both companies and request personal briefings at your site on their plans and how those plans will affect you,' says Hutchison.

Next, you should look to independent third-party observers. Publications such as The Wall Street Journal can be very helpful since they have no stake in the outcome of the merger and are likely to offer unbiased reporting of the facts. Still, bear in mind that the sources of information for these publications may be the companies involved, who may be putting their own spin on events.

You might also look to the big consulting firms for insights on the merger -- you know, 'The XYZ Group' that publishes those high-priced reports. The only caveat here is that the gurus at these firms may have their own 'trend' axe to grind, leading them to bend reality to fit their interpretation.

More importantly, don't confuse rumors with information. Make an effort to either verify or disprove any rumors that come your way. You could well strike some nugget of knowledge that is true and important, or you could dispel an unnecessary source of anxiety.

Once you have some information and some sources to keep that information current, you can begin to evolve your own plans. You are not a puppet or victim of this merger. You have your own agenda, and you should begin to develop your plans in line with your own purposes.

2. Get personal

You already have contacts at your vendor, so start using them to make your wishes known. You have several areas that you may care about and several ways that you can influence events during the merger.

For example, you may be dealing with certain sales representatives or support personnel with whom you may wish to continue working. You should make this preference known to the people themselves, their managers and upper management at both companies. One unfortunate outcome of many mergers is the downsizing of sales or support people now regarded as superfluous. Your vote may well influence who is kept and who isn't.

You can also have influence on the direction of the product you use. You may be surprised to learn that the merging companies might not have a clear vision for that product; on the other hand, you probably have definite ideas about what you want out of it. In Hutchison's experience, your input as a paying customer may be vital in helping the merging companies make decisions about the future. Contact the companies early in the merger process, request a meeting and let them know your vision. You may well find yourself in a commanding role in determining the direction of the product you're buying.

Just because you aren't a victim of the merger process, there's no reason not to portray yourself as such to the merging companies. It's sad, but true: The squeaky wheel gets oiled. During this time of transition, they may be especially sensitive to customers jumping ship and open to making certain concessions to ensure that doesn't happen. It's a good time to inquire about price concessions on existing products or services or package deals for new products or services. You might also want to find out about possibly upgrading to other products.

It's also crucial to pay attention to support during this period. The merging companies may be making an effort to reduce support, or the support people may be in flux themselves. Speak up about any lapses you see. You don't have to become a pest, but you should assert yourself about any perceived 'slippage' in their usual high standards.

3. Come together

Now is the time for all good customers to come to the aid of their product. Search out other customers that are in the same position you are. Odds are that they are not in the same business as you, so you can share merger and product information with impunity. Use your combined interests as leverage with the merging companies. It's one thing for the merging companies to face several separate customers. It's quite another matter for them to face a united block. By using your joint influence, you may be able to affect policies more effectively than you could alone.

4. Develop Plan B

The merger may go sour on you, so be prepared to cut loose if it seems warranted. Investigate alternative products to replace those threatened by the merger. Find out about pricing and integration issues for replacements. With merger talk in the air, competitors may be receptive to price breaks and helping you switch over to their products. Ideally, you should have a transition plan in place before the merging companies finalize theirs.

This is one area where you do not want to be caught unaware. You must take your own future in your hands. If the worst happens and your product gets the axe, you should be ready to move down another path immediately.

You'll hate hearing this, but expect the unexpected. Actually, some possibilities shouldn't be totally unexpected. As people get shuffled around, you may have problems reaching sales or support staff, so plan for it. There may be lots of uncertainty and confusion. Ride it out with alternative sources of information.

Riding the merger wave

With the recent wave of mergers in the security space, numerous companies face the challenge of surfing out the aftermath without getting caught in the undertow. While it can undoubtedly be a rocky ride, there's a pretty good chance you'll land on the beach in one piece--provided you do your homework and make your wishes known to your vendors.

Such was the case with Kingsport, Tenn.-based Eastman Chemical. After considering both Axent and PassGo as possible vendors when looking for single sign-on and password synchronization products, Eastman Chemical eventually went with PassGo, the smaller of the two merging companies. Consequently, they were not sure how that merger would affect the products they were using.

When Axent and PassGo announced the merger, the atmosphere was nothing less than 'apprehensive,' recalls Bill Horton, systems associate at Eastman Chemical. 'We were taken aback,' he says.

However, the company took the initiative in acquiring information and implementing their own plans when they heard the news. For example, they consulted with GartnerGroup on the possible outcomes of the merger and its impact on products, service and other concerns. They also spoke with their contacts at PassGo about the plans after the merger, and verified that information with Axent.

As it happened, Axent has moved forward with the PassGo products, simplifying the situation for Eastman Chemical. This development, however, did not happen without Eastman's input. 'The PassGo sales and support team worked closely with us on the path they were taking,' says Horton. One positive result was that, with Axent's help, the PassGo products gained SAP support, something that Eastman Chemical had been looking for in the first place.

'We did have some concerns about working with a new team,' Horton adds. In fact, one person who they hoped to continue working with was reassigned within Axent. Still, the outcome so far has been good.

Moreover, Horton indicates that Eastman Chemical had still been negotiating certain aspects of their contract agreement while the merger was taking place, and so had some leverage. 'Things might have turned out differently if the merger had been finalized sooner,' he says. Sometimes the timing works out just right.