Involving IT early on: enhancing the success of M&A

August 2015 | EXPERT BRIEFING | MERGERS & ACQUISITIONS

financierworldwide.com

Mergers & acquisitions (M&A) are among the most intense and challenging activities in business. Managing the IT integration risk associated with a merger has become a major component in determining the ultimate success or failure of M&A. Expectations regarding cost savings and economies of scale often focus on IT. In fact, IT plays a critical role in determining how effectively the merged organisation is able to integrate processes and people, as well as deliver products and services to internal and external consumers.

Studies have indicated that while numerous deals have fizzled for various reasons, a major reason seems to be that the CEO did not bring the IT department on board early enough – mainly due to a lack of understanding of the important role that IT plays in M&A. Successful deals normally depend on solid IT backing by knowledgeable IT personnel who comprehend the subtleties of these sorts of arrangements, can perform appropriate technology due diligence and can efficiently arrange a post-merger integration project. With sufficient advanced notification and proper involvement in the M&A process, IT can deliver enormous value and help to ensure a successful transition.

Three key considerations should be incorporated in any IT-oriented discussion related to M&A. They include: (i) collecting requirements and assessing any gaps in IT proficiencies; (ii) prioritising initiatives; and (iii) creating an integrated implementation road map.

Collecting requirements and assessing any gaps in IT proficiencies

The primary consideration in merger integration normally happens throughout the first (or due diligence) stage. The IT due diligence stage serves to evaluate: an organisation’s current state of technology; issues linked to sustaining its current technology; financial consequences of a technology plan; opportunities for leveraging existing technologies; initiatives essential to undergo a successful merger; and business risks.

During this stage, IT must foster an understanding of all technological requirements made by the merger. This begins by recognising requirements inside the IT department itself. CIOs need to acquire a good understanding of the IT assets on both sides of the arrangement to determine how the two organisations can best fit together, where any conceivable cooperation might be found, and where integration risks could take place. This process necessitates a survey of IT infrastructure and an arrangement for supporting resources and eliminating redundancies. Areas of examination include: hardware, software, and network systems, enterprise and departmental application and data platforms (e.g., ERP and/or CRM systems) and corporate programs for specific lines of business, products, services and vendor platforms.

CIOs must decide how best to give IT backing to the organisation’s long haul development methodology, including hardware and software for new product and service recommendations, client maintenance and procurement, and entrance or venture into new markets.

Prioritising initiatives

Given that IT resource availability may be decreased throughout the merger, technology leaders must be systematic in assessing how resources are best positioned to help current operations while preparing the merger or acquisition. When IT is included in the process of integration early on, coordinated effort with the business teams can occur to guarantee projects are appropriately prioritised. Priorities may include: overall business impact such as regulatory compliance, risk management, and potential restructuring of services or product lines; ease of implementation and technical intricacy; and expected business benefit, including potential cost savings and revenue growth.

Creating an integrated implementation road map

Once CIOs have pinpointed priorities for both the IT department and the new corporate structure, they can convert this list into a roadmap, including sub-projects, detailed timelines and contingency plans. The map will probably uncover redundancies over the prioritised activities in addition to key gaps in the IT proficiencies required to complete them.

The implementation roadmap will require that IT departments balance several types of projects and initiatives such as continuing day to day operations to preserve stability during integration; rationalising IT applications, infrastructure and recruitment resources; and backing business projects that necessitate modifications to IT platforms.

A well-constructed map should incorporate a plan to address these challenges. Furthermore, it should emphasise imperative conditions and success factors for each of the three key considerations discussed.

Facilitating communication between business and IT

With IT assuming an overwhelmingly imperative position in today’s organisations, fruitful merger and acquisition integration facilitates close alignment of IT and the business side of an organisation before, throughout and after the transaction. This kind of methodology commands that IT correspond early and regularly with the business throughout all parts of the M&A process. Regular, straightforward correspondence between the two will create a balanced perspective of the new organisation and a careful understanding of its capabilities.

IT involvement in the post-merger phase

IT management has to deal with several concerns in the post-merger phase. In truth, merging two or more organisations entails not only merging their core businesses, but also establishing a new and efficiently integrated IT organisation from the individual ones, as continuation of the present IT organisations is not typically the best option.

The primary crucial success factor when merging IT organisations is the uninterrupted operation of the IT business, as a service gap is neither acceptable for in-house functional departments nor for external customers or clients. The successful role of IT in post-merger integration not only brings real results – it is often the difference between a successful merger and one that never meets expectations.

Steve Litwin is the president of Litcom. He can be contacted on +1 (905) 763 8900 or by email: steve.litwin@litcom.ca.

Steve Litwin

Litcom