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Yesterday it became official that Hypergene and Stratsys intend to merge. The companies offer cloud-based solutions (so-called SaaS services) within financial planning and analysis and strategic management respectively, where their solutions today partly complement and partly compete with each other. Both vendors have a strong position in the public sector, especially with municipalities, but both vendors also have customers in the private sector.
This may be the last merger of the year between companies offering cloud-based solutions, but it is not the first business of the year; rather, it is one in a series of deals and mergers involving companies that offer various types of cloud-based solutions. It is evident that the owners and the financial market appreciate this type of merger, but what happens with the value for the customers?
For those following developments in the IT market, this is less a surprise and more a natural next step after the summer's deals with the merger between Mercur and Aaro as well as Monterro's acquisition of Planacy, among others.
The capital market has a great hunger for larger companies as well as companies with stable recurring revenues, and it is precisely stable recurring revenues that characterise companies with successful cloud-based solutions. Customers pay annual licence fees and retain the solutions for many years. This stability provides good opportunities to pay both interest on loans and dividends to owners, which is a combination many investment companies seek.
Unfortunately, acquisitions and mergers are all too often driven by financial logic rather than entrepreneurship and visions of better products for customers. A merger with a similar company becomes, in this context, an effective tool. Through cross-selling each other's solutions to each other's customers and cost reductions by eliminating overlapping roles, short-term profits can be created. At the same time, there is an obvious risk that the focus shifts from product development and customer value to internal integration. Management discusses which company had the best model instead of building a joint organisation that works efficiently towards a common vision. Product development resources are spent on getting the solutions to work together instead of creating new and better functions that meet customer needs.
The risk is simply that the pursuit of short-term profits takes precedence over the long-term work of solving customers' challenges.
Whether the merger between Hypergene and Stratsys will be successful or not is of course too early to say. First, it needs to be approved by the competition authorities, and only then can the real integration work begin. Until a few years ago, the companies clearly offered complementary solutions with less overlap, and it was common for customers to use Stratsys for strategic management and follow-up and Hypergene for Financial planning and follow-up. Recently, however, the companies have competed more as Stratsys has offered solutions for financial analysis and Hypergene has offered solutions for strategic management.
Hopefully, the merger can mean that customers are offered a good and cohesive solution that covers the whole range from strategic management through tactical planning to operational follow-up. The merger may also provide the strength to broaden functionality to new areas or meet the needs of new customer groups.
However, there is a risk that the reduced competition will allow for increased prices and that the focus will be on internal integration instead of creating customer value. If that happens, both customers and, in the long run, the owners will be losers.
The outcome of the merger between Hypergene and Stratsys will not be known for many years yet, but we want to leave a thought for the continued work. Customers rarely buy solely based on functionality but buy based on the trust that the vendor can help the customer solve a problem. It often takes longer to build up trust with customers than it takes to destroy trust through poor delivery capability or increased prices without increased functionality.
Successful companies are built on solving problems and creating value for their customers, not on meeting the financial logic of the capital market.
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