I just returned from #ASAE2017 in Toronto and would like to share some thoughts on a pervasive question from association leaders. How will mergers and acquisitions among association technology vendors impact my association? Should we be concerned that our AMS, LMS, CMS, etc. will be deprecated in some way? Will we be forced to use a different system and what should we expect from the vendors in terms of migration?
Article by Rick Bawcum, CEO Cimatri
First, let’s examine the question of why now? Why are well-established brands entertaining overtures from investors Why are investors interested in this market segment, which has typically been something of a cottage industry?
The reasons for the uptick in M&A activity are many, but this is an excellent time to apply the first principle of ‘follow the money’. Mergers and acquisitions are fueled by capital. Investors want a market or better return for their invested capital, and will not invest in an industry or company that does not have strong potential for growth. Therefore, the fact that investors are active in the association technology sector indicates their confidence in the growth potential of the market. A positive thing.
The association technology and AMS market is also fragmented. A quick scan of www.ReviewMyAMS.com reveals more than 60 vendors offering association management systems. Assuming the basic functionality of an association is managing member rosters, providing relevant content and education opportunities, and supporting collaboration among members, it can be assumed that significant overlap exists between these products. These factors represent a classic opportunity for consolidation.
Digital disruption will also drive obsolescence. In the gig-, uber-, amazon economy, association customers are bringing their consumer experiences to the membership world. Application vendors must keep up with feature requests and shifts in underlying technology platforms at an ever-increasing rate.
Managing change requires technology vendors to be more agile, attract more and better talent, and continuously invest in producing products that delight their customers. This translates into a need for more and continuous investment in products and services.
We’ve seen this movie before… or, at least I have. I began my career several decades ago in the financial services industry during a time of extreme regulatory change. Later in my career, I took the change management lessons I learned to the communications industry [think smart phones, digital paging, and broadband]. I’ve observed and managed technology M&A as both a consultant and corporate technology executive. Here are some observations and lessons learned that can be applied to the association sector.
M&A activity in the association tech sector will ultimately make the vendor ecosystem more healthy. The overlap in basic functionality between solution providers motivates them to consolidate in order to efficiently apply capital in their product development activities. If these vendors are able to buy vs. build an existing technology more efficiently than producing it on their own, several things are accomplished. Associations receive new features faster, the vendor can re-direct capital toward developing other features, and investors are assured that the product will remain viable in the marketplace.
One excellent example of the positive impact of M&A in the association sector is Higher Logic (www.higherlogic.com). The team at Higher Logic announced last year they were ‘taking on outside investment’; M&A speak for ‘we are collecting capital to grow our business at the pace demanded by the marketplace’. Since the announcement, Higher Logic has acquired two companies, expanded their markets, and made significant investments in executive and customer support talent. All indications are that the market is rewarding their M&A efforts as evidenced by their recent announcement surpassing 1,000 clients worldwide. I have heard nothing but positive feedback from my clients utilizing the HL platforms, and most intend to aggressively pursue new opportunities with their learning management, standards development, and community engagement solutions.
We can expect similar results from consolidation player Community Brands. The synergies (another M&A buzzword) between the various brands will allow them to better serve customers operationally, while investing smartly in intellectual property that will enhance the entire portfolio.
So… should we be concerned and what should we do to mitigate risk in the era of consolidation in the association technology sector?
First, focus on your data. Regardless of which solution is implemented in your association, the quality of the data you maintain about your customers, members, volunteers, etc. is the holy grail. In a fragmented vendor ecosystem, this will require an investment in data warehousing and analytics capacity. In the financial and telecommunications sectors, we used many different systems, each with its own database. To get a true picture of our customers, we built data warehouses that cleansed, consolidated and delivered reports and dashboards required for decision-making. This approach provided additional advantages when we need to change vendors in that our data was never held captive by the vendors.
Build resilient integrations. The toughest job in association IT at the moment is ‘making the systems talk to each other.’ Most associations utilize five or more application systems: association management, learning management, content management, marketing management, certification management, etc. It’s challenging to get a true picture across the myriad platforms and application databases (echoing the earlier focus on data theme) but it’s even more challenging to re-create the interfaces between systems when a change becomes necessary. One solution is to build integrations utilizing a service oriented architecture (SOA). This geeky topic begs further discussion, but simply stated the service architecture creates a resilient communication channel between applications that will minimize disruptions caused by changes at the application level. Bonus points… the SOA platform can ‘feed’ your data warehouse.
Minimize customizations. As vendors consolidate and invest in new features, they can only assume most customers utilize their systems ‘out of the box’ with minimal customizations. Customizations; building one-off solutions not provided by your vendor generally leaves you out on a limb… saw in hand. When, not if, your vendor upgrades the system, you must re-invest in the customization and / or convince your vendor to add it to core functionality.
Keep your relationship healthy. Last, but not least, it’s critically important to keep your relationship with your vendor(s) healthy. Invest in user conferences, keep the dialogue open, and be open minded about the competitive nature of the association technology sector. For the most part, vendors are privately held companies who must respond to the inherent disruptions in technology and the fast pace of changing consumer expectations. We should see the entrance of investors, and the subsequent M&A activity in the association technology sector as a positive sign that serving association members is a growth market.