Editor’s note: Veteran tech attorneys Jim Verdonik and Benji Jones are co-founders of Innovate Capital Law. Both are contributors to WRAL TechWire, offering insight on mergers-and-acquisitions, crowdfunding and other tech deals.
RALEIGH – The long awaited closing of the Red Hat and IBM merger reminds us a lot of a royal wedding in the UK.
Lots of people become fanatically interested in all the details. Other people couldn’t care less.
Benji Jones, left, and Jim Verdonik. (Photo courtesy Innovate Capital Law)
Whatever camp you fall into for the IBM-Red Hat merger, there are some things to watch and learn from.
Short-Term Hangovers.
Some people may have been overzealous in closing celebrations involving adult beverages. For the first day or two people at both companies should treat fellow employees with compassion.
Let Down
A merger transaction is like a marathon. People have been training for it for many months. When the merging process is finally over, there can be both a physical and emotional letdown. It’s important to make this period short, because the merger involved promises of future synergies and that takes work. It’s difficult to manage through this period, because the people most likely to be affected are the top managers. They have to self-correct.
Airports
Red Hat and IBM people will be doing a lot of traveling to meet customers, distribution channel partners, vendors, the investment community and government regulators.
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Travel budgets will increase dramatically. Families will be separated. Hopefully, some productive work gets done in the process, but a lot of energy will be expended just in dealing with the logistics.
Culture
Everyone is watching to see whether sparks fly when people from the two different cultures start working together on a day to day basis.
Culture is both an outlook about the world and a set of rules. Together, they define what is acceptable and what is not. What are reasonable expectations? When do you have a right to get mad at someone? How should you deal with “violators?” Eventually it’s about raw power. Who defines what the new rules are? Who has the power to make someone conform to the culture?
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Because IBM and Red Hat have different cultures it is likely that people will be making mistakes. People will get angry and feel slighted. How management deals with these mistakes is likely to determine whether the merger achieves its goals or fails.
IBM has changed from the day when everyone had to wear a suit and a tie and everyone was a lifelong employee, Big Blue still has a strong culture that remains decidedly more corporate and conservative compared to the newer generation of IT companies. IBM was built on hierarchy – everyone had a place and could predict the next ten places they would occupy before they retired.
Red Hat in the other hand started as a bunch of guys wearing funny red hats and has a flexible and transparent operating style that encourages people to ignore hierarchy.
Blending these different cultures is the primary training ground for preparing the new joined IBM/Red Hat army to win battles in worldwide competition in a dynamic industry. Most key people won’t leave because of money issues, but they will if they feel slighted or lost in an alien culture
Intellectual Property
IBM has a long history of patent enforcement. It’s kept many patent litigators busy and prosperous for many years. Red Hat originally refused to patent anything. Later, Red Hat changed its strategy and began building a patent portfolio, but Red Hat has remained committed to open source software and using patents defensively. Look to see which Intellectual Property approach wins out.
Employee Benefits
Little things like your family doctor not being covered by a new health insurance plan can cause big problems, because it affects employees’ families. So, it’s prudent not to make too many changes to benefit plans too quickly.
Merger Synergies
Some mergers create synergies by cutting jobs, which improves the bottom line. Other mergers create synergies by making people more productive, which increases top line revenue.
Everyone prefers increasing productivity, but the problem is that takes longer to achieve than cost cutting. So, the temptation is to show Wall Street the synergies quickly by cutting jobs, which sometimes makes it more difficult to make people more productive.
Bottom Line
These are the immediate challenges. It’s a big job for the management teams of both companies.
One thing they have going them is that both companies are known for high quality service. If they focus on maintaining that and even improving that, they may be able to create a company that is better than each of its pre-merger parts.
Time will tell.
