Mergers and acquisitions (M&As) are lengthy, complex, and sometimes messy. Bringing two large organizations together is something that calls for the highest degree of skill and tact. Many M&A deals have failed to unlock the envisaged benefits and synergies not because the potential wasn’t there but due to the fact that the M&A process wasn’t thorough enough.
Usually, most M&A deals get the alignment of finances and strategy right. However, it’s bringing the operations and technology together that often dooms many deals to failure. More particularly, far too little attention is given to technology in the typical M&A integration playbook. This inadvertently makes technology an impediment to the transaction.
By applying the following tips, business executives can ensure an M&A deal is a success by seamlessly merging the technology infrastructure of the two organizations.
Once an M&A deal is confirmed, there’s a bit of an expenditure and activity slowdown that envelopes both organizations. Management drags its feet on spending and many activities stand suspended. In principle, this is the right thing to do. However, this isn’t necessarily appropriate when it comes to the management of technology infrastructure pre-M&A conclusion.
The messier either of the organization’s IT systems are, the more integration problems they are bound to run into. Messy here means inflexible, non-scalable, insecure, unpatched, non-adaptive, and non-versatile. The technology environment is also less than ideal if there are more systems than are necessary (the organization hasn’t, for example, made an effort at replacing disparate applications with a single ERP system).
Both corporations must have systems that not only address current business needs but are scalable enough to accommodate future growth in data and traffic volume (including volume growth that comes from an M&A). In short, both organizations systems must be prepared for the M&A. Even if one side’s systems may be phased out eventually, having two viable alternatives on the table certainly bolsters the odds of successful system integration.
M&A discussions are often led by CEOs, CFOs, and COOs with negotiating teams mostly comprising of finance and legal professionals from either side. There’s little to no representation from the technology department until the transaction is at advanced stages. This is a costly mistake.
Many forecasts of the aftermath of an M&A are based on financial formulas or sophisticated projections submitted by the transaction advisers. In reality, many of these forecasts assume the smooth integration of the two organizations systems and operations. System integration is not just about the technology department itself but rather the numerous enterprise functions such as HR, finance, compliance and customer service, that rely on IT systems to run efficiently.
By roping in the CTO, CIO, and CISO as early as possible in the M&A conversation, both corporations can start evaluating each other’s technology and determine how their systems can complement one another. It’s at this early phase of negotiations that IT executives can begin to make decisions on what systems to retain and which ones to phase out. There should also be a concerted effort at crafting a data migration plan.
System integration following an M&A isn’t something that can be initiated and completed in a matter of days. Usually, M&As involve two fairly large organizations with complex technology environments. System integration can, therefore, be expected to run for at least several weeks but more probably months.
To ensure both IT teams have realistic expectations but at the same time do not allow things to fall through the cracks, the system integration team must develop a detailed plan of action that includes specific milestones on what should be completed by when.
High priority systems and data should be given the most attention and resources as the failure to integrate these can stop the entire M&A process on its tracks. Lower priority systems can be tackled later as both companies continue to run these systems separately for months before they are eventually migrated to one application.
As businesses become ever more dependent on IT systems to facilitate their growth and operations, the role of technology in determining M&A success will only continue to rise. Organizations that recognize the critical role IT plays in an M&A will have greater chances of executing a successful transaction.