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Hey guys, Scale’s back again. We’ve spent the past week discussing today’s topic, M&A, with dozens of growth investors, founders, and most importantly - Will Sealy, CEO of Summer - read on to find out what we learnt.

The Story

Why did Summer consider M&A? 

The inspiration started with Will Sealy, CEO of Summer, realizing that a consequence of being a product- first company was that their customers loved what they had built, but distribution partners had low awareness of Summer’s brand and product strength. 

This issue is common with businesses relying on product-led growth instead of sales-led growth, but turns into an issue at scale, especially given who Summer sells into: enterprises.

General Catalyst breaks down the framework really well, based on who makes the buying decision:

• If your buying decision is made by the end-user, use a product-led strategy

• If it’s made by the office of the CFO, use a sales-led strategy

Summer found itself in the awkward position of selling into the “office of the CFO”, yet had used a product-led strategy until now. So how do they win…? 

To Buy, or To Build… That is the question. 

Summer had two options: build these marketing capabilities, or buy a competitor. 

Some readers might wonder: “isn’t M&A something only massive businesses do?”. Not according to McKinsey’s framework on the “buy and scale” strategy. According to them, the strategy is applicable to all, but for different reasons. At the Series A stage, disruptors such as Summer should use M&A to: 

This is exactly what Will and the Summer team did, through their acquisition of Vault. 

Why pick them? 

While Summer was out building the best possible product, their competitors (in classic B2B SaaS fashion) were aggressively growing out their sales & marketing efforts. One such competitor was Vault. Here’s the synergies according to Will: 

When you put these businesses together, you get (to quote Bain & Co.) a more full product with stronger core capabilities -  a dominant, leading player in the market. 

It’s not you, it’s me

Whilst true for all M&A transactions, we’d be remiss not to mention how every investor or founder we spoke to emphasized: the only factor that matters for scale-up M&A is cultural fit.

This was further impressed on us by Will himself who said that pre and post acquisition work culture was what they were measuring for at every step of the way. 

Given how difficult cultural fit and talent retention is to predict, Bain takes this further and even asks management to test how valuable the target would be if the critical talent were to leave.

95% of failed M&A transactions are due to lack of focus on integrating two cultures, according to McKinsey, which is especially true for tech companies with a young, “more likely to jump” workforce. 

This won’t be a problem for Will & Summer, given their approach to post-merger integration focused heavily on cultural alignment.

His integration playbook included:

What does this mean for you? 

If you’re in the blessed position of being able to acquire businesses at your sole discretion, you should only ask yourself one question: can you give Aryaman & Rahul jobs?

Just kidding. Here’s what Will Sealy tells us to think about: 

1. How similar are the two businesses? (If too different, it might be a square peg in a round hole. Think about this from a product, sales and regional perspective)

2. How similar are their senior management’s views on the future? (Think this one’s self explanatory) 

If you enjoyed this issue, please share it with fellow founders, operators, & investors and fill out our feedback form above.

See you next week!

Rahul & Aryaman