The first issue that has to be faced is the employees - what incentives should be given them and how are they to be motivated after the acquisition? "The employees had already exercised the matured options of the acquired company, and received the money," says former Algorithmic Research general manager Yossi Tulpan. "To overcome the problem, it’s desirable to give them options of the acquiring company. It’s also possible to give incentives based on every success achieved by a product developed in Israel, such as a percentage on sales."
This, however, is just the tip of the iceberg. All of a sudden, realisation dawns that the new boss from America has come here with no sentiment whatsoever. As far as he is concerned, Israeli engineers, with all due respect, are another few cogs in the well-oiled technological machine the entire function of which is to make money for him. And then, from feted heroes, they quickly turn into grey, rank and file technology workers.
"The Americans are only interested in the technology. Most of them are unaware of the fact that the secret weapon in the company’s success is the enterprising quality of the high-tech workers," says Tulpan. "Start-up companies score successes thanks to people who work together like a commando unit.
"The minute you’re left with just the technology aspect, you get demoralisation. People don’t want to be just researchers; they want to be part of the success, and to be active in every area in order to ensure it. Stripping them of responsibility for the company’s advancement takes away their esprit de corps.
"The only model I know for a successful acquisition," adds Tulpan, "is to keep the Israeli company as an independent unit, to leave it responsible for the product segment it develops. NiceCom is an example of the success of this model.
"Conversely, what happened to Lannet is a classic example of the disaster liable to occur following a sale. Lannet was an excellent company. It lost its effectiveness because Madge, which bought it for $300 million, broke it up into its component parts.
"As soon as Lannet’s employees took the reins back into their owns hands, and once more became responsible for the products they produced, the company began to show signs of revival." The end (so far) is well known: Lannet was rehabilitated, and sold to US company Lucent, this time at half-price - $117 million.
"The bottom line," Tulpan says emphatically, "is that it is very important to maintain the Israeli company as a cohesive unit, with a sufficiently broad area of responsibility. US intervention must be at the level of assistance with marketing channels, not a dismantling of the Israeli company."
Published by Israel's Business Arena on July 29, 1998