Despite what GlobalData called a “steep decline” in merger and acquisition (M&A) activity in 2022, the data and analysis provider said deals were still worth a staggering $2.8tn. Though down by almost a third (29%) from 2021 – the result of higher debt costs, declining equity markets and economic uncertainty – the appetite for business consolidation has remained insatiable. Those incredible numbers are perhaps even more confounding given the rate of M&A failures. Top-end figures put that at around 90% – that’s nine out of every ten deals collapsing – some spectacularly, others simply fizzling out.
One company dramatically bucking this trend, however, is digital technology and marketing services provider DEPT. It has been carving out a mind-boggling growth trajectory, only briefly slowed by the pandemic, since 2018. Today, working across five continents, it employs upwards of 4,000 specialists at more than 30 locations, amassing clients like ASOS, eBay and Just Eat, to name but a few. “The company is on a mission to build the best digital native agency in the world”, explains its CFO Mickey Kalifa.
The child of two Dutch agencies – the original technology services business merging with a marketing services agency – DEPT has since made over 30 acquisitions, split evenly across digital marketing and technology services.
It is now a global business with teams in cities as far afield as Jakarta DEPT and Toronto.
At the time of its first acquisition, founder Paul Manuel signalled his intent to continue an uncompromising approach to growth through M&As: a playbook still followed today. Recently, DEPT entered the Indian market, through the purchase of tech firm Tekno Point and its 500-strong team. Kalifa, however, is at pains to stress the company’s mantra: “Big enough to cope, small enough to care.”
Managing to grow
Such colossal growth must be carefully managed. Key to not falling foul of that ominous 90% statistic is autonomy, something Kalifa says is vitally important to DEPT as a company. “We don’t strangle them [acquired businesses], we let them continue as they were,” he explains. “The reason we acquired them in the first place was because they’re really good companies. It makes little sense to change too much about something that’s working.”
But bringing new entities – or ‘teams’ as DEPT calls them – into the fold isn’t taken lightly. To protect the culture that’s already established – an ambition Kalifa and DEPT speak passionately of – huge amounts of work goes into making the post-close transition as smooth as possible. There may be “things that we do to integrate them and make them better, perhaps more efficient,” Kalifa says. “But we try not to change the actual core elements of the company.”
Whatever the principles involved, onboarding can often be a challenge. Assimilating people, processes and ambitions is fraught with potential flashpoints, often rooted in a cultural dogma. But, for now at least, DEPT is in the envious position of being relatively new itself – which has its benefits. “We are a young business so there’s very little in the form of legacy systems and processes, and our processes have been set up to fit the work we do,” Kalifa explains, “We’re not trying to put a square peg in a round hole.” This is also true of some of the companies it acquires, which are often newer market players, making it easier to integrate them and their fledgling systems.
That’s not to say there isn’t a process DEPT follows. All successful acquisitions are the result of good planning and effective onboarding, backed by an effective communication strategy. “I believe we have a world class M&A team, as good as any investment bankers,” is how Kalifa puts it. “They’re just brilliant at identifying and then acquiring companies. But we also have a first-class onboarding team, dedicated to bringing companies into the fold and integrating – we’re really strict about that.”
Kalifa says that, following the completion of a deal, the company affords itself only a “very tightly defined period of time” – between 60 and 90 days – to effectively integrate numerous elements. This includes finance and customer relationship management (CRM) systems, essential if a company is able to see, analyse and project accounts and sales performances in real time. It’s a process that Kalifa says can be a little painful, particularly given the speed at which it needs to happen, but the benefits often outweigh that pain.
Financial infrastructure, IT systems and digital workspaces, such as Slack channels, will vary from one company to another, making it crucial to collaborate between internal departments and the newly-merged teams. Generally speaking, during M&A planning, a range of questions should be posed: How compatible are both companies systems? How can one be integrated with the other; what data challenges might that pose? How will new teams adopt these systems? Kalifa believes many of these elements are often overlooked.
DEPT, for its part, uses the NetSuite enterprise resource planning system – which it migrates new teams to, giving it immediate access to their financial credentials. “The fact that we have standardised, well-documented and easy-to-follow integration processes is a huge advantage in ensuring we get access to the data for financial planning and analysis,” Kalifa notes.
Describing the onboarding process as “efficient”, he adds that much of the heavy lifting is done by incoming teams themselves. New parts of the business are supported in the day-to-day by their equals, others in the business already doing the job. “It’s hard work,” Kalifa says, “but we carve out their time to help this process. We manage it that way and find it’s much more efficient than having a dedicated, standalone team that all they ever have to do is integrate. That wouldn’t be very efficient.”
The power of people
It’s that people-centric perspective, and the focus on respecting the business cultures of new teams,that Kalifa believes are most important here. Protecting culture is a key part of onboarding. But even more so, it is a critical element when selecting a team to buy – yet one that is all too often neglected as buyers fixate on the numbers. But given most deals collapse as a result of culture clashes, there’s certainly a risk to taking this approach. That’s clear enough from the numbers: between half and three-quarters of all post-merger failures are the result of clashing cultures according to numerous studies, while Deloitte reports that 76% of senior executives see cultural integration as a major factor in integration success post-merger.
Kalifa and his senior colleagues, for their part, are keenly aware of these challenges. “We can look at the financials and the growth prospects,” he says, “but first and foremost, more important than anything – even if you’ve ticked those boxes – is if the culture’s not right, then it’s a no.” So, is there a metric DEPT can use to determine that? The answer, Kalifa says, is no: it’s an instinct. “We want to respect the people and the quality of the work they do, as much as the money that they make.”
Nor is this focus on culture merely reserved for an acquisition. Rather it cascades through business units even in the day-to-day. Celebrating his colleagues at DEPT, Kalifa says he’s been lucky to join such a strong team with a distinct culture – particularly given how young the organisation is. “I’ve been around the block a few times, but I was hugely surprised by the quality of the financial team within DEPT. There’s been a few people I’ve brought in recently, but the core is extremely strong.”
It’s clear that, for DEPT at least, it’s people that make for a good acquisition. Of course, the numbers have to make sense and the business has to be the right fit – in terms of culture and vision – but processes can be worked on and sharing and incorporating systems with one another is achievable. The most critical element is having the right talent and a commitment to make it work. “I’ve learned that it’s not about the number of bodies you have, it’s about the quality of the people. They can make or break an organisation or financial team,” Kalifa summarises, adding he’s been “very lucky” to have the people around him he does.
As far back as 2005, when looking at the challenges thrown up by M&As, Deloitte asked: “What forces are powerful enough to counteract the value-creating energy of economies of scale or global market presence?” The answer, it said, was partly culture. “Companies with different cultures find it difficult, if not often impossible, to make decisions quickly and correctly or to operate effectively.” That remains the case today, as Kalifa can testify. The importance of understanding the people you’re soon to work with is arguably as vital – if not more vital – than understanding the systems they’re bringing with them.
