The Strategic Value of IT in M&A Part 3: Reaping the Benefits

James Cotton
May 23, 2019

So far in this mergers and acquisitions (M&A) blog series, we’ve established that IT must be connected to the strategic drivers behind any transaction, both at the due diligence phase and to enable “integration with the lights on." In this third and final installment, we'll look beyond day one to day 100, when organisations start expecting to realise synergies through optimisation and consolidation.

Accelerating the Delivery of Synergies

The sooner a purchaser comes to grips with a target company’s IT set-up, the easier it is to plan where savings can be made. Once the media frenzy of the merger or acquisition subsides, the entire organisation will be looking to the CIO to not just keep everything up and running, but to make a positive impact on the overall success of the deal. Consolidating data and systems is key to speeding up the delivery of synergies.

When two become one, there’s an opportunity to provide the same or better services with a smaller footprint and greater efficiency through standardisation. There will be at least two, but more typically, multiple instances of enterprise resource planning (ERP) or customer relationship management (CRM) systems, which are ripe for consolidation. There are likely to be further synergies across infrastructure, application portfolio, end-user support, or management and administration.

However, IT touches almost every aspect of a company’s operations, many of which are business-critical. Consolidating all IT systems or operations the minute the ink is dry on the contract is neither feasible nor desirable. Given that the end game of M&A is to promote growth in some way, any large-scale changes to the IT environment need to be based on a clear understanding of the combined entity’s business strategy, goals, and capabilities. There is little point in consolidating resources to provide short-term cost savings if the newly converged organisation is subsequently under-equipped to support the company’s long-term growth ambitions.

One Strategy Does Not Fit All

Faced with a merger, CIOs should consider the opportunity to scrap both sets of legacy products, such as back-office systems, in favour of migrating to the cloud, in order to reduce capital costs, eliminate silos, and overhaul inefficient business processes. Cloud applications may require less hands-on integration and maintenance compared to traditional on-premises systems, and can be more easily configured and scaled for a company’s evolving needs. However, a rip-and-replace approach, if not carefully managed and resourced, can take years, end up over budget, and deliver less value than predicted. This only generates incremental value from massive investment.

In the case of an acquisition, it’s common for the target company to adopt the IT platforms and practices of the purchaser. However, the traditional integration model may not work in the case of a digital acquisition, which may provide differentiated capabilities and is, as such, a value enabler rather than a legacy cost centre.

Tighter Integration Between IT and the Business

What we typically see when working with customers post-merger is that successful consolidation and optimisation efforts demand close alignment of IT and lines of business, to gain a holistic view of the new company, its capabilities, and priorities. We help organisations understand how information flows through departments, and assess data and application dependencies. We can speed up the delivery of synergies by consolidating data and systems, optimising the merged IT landscape, and keeping isolated systems in sync. Crucially, our people bring specialist M&A experience and knowledge of the pitfalls of integration, so we’re well placed to steer organisations through this period of transition.

An illustration of this is one of our food industry customers which, through a strategy of organic growth, mergers, and acquisitions, had become one of the largest, privately held snack food powerhouses in the U.S. The company uses our integration technologies to ensure that new systems are absorbed into its IT environment each time a new company is brought into the fold. New sources of information can be onboarded quickly and easily, and made accessible through a host of self-service dashboards and analytics assets, resulting in a more data-driven culture that gives the company a competitive edge.

Putting Data at the Heart of Business Synergy

In the digital world, we’re seeing that M&A strategy is often as much if not more about acquiring data than it is about gaining brick and mortar operations. The new company can’t be considered to be integrated until all of the combined entities’ data is integrated. While the temptation may be to wade into consolidation efforts with a focus on systems or application integration, the first priority must be to have a data integration plan. This will lay an organised and optimised foundation for application development and analytics, to enable a broad spectrum of business users to take advantage of data and make use of knowledge at the point of decision-making.

The wrong IT strategy will haunt the value of a merger or acquisition for decades to come. But a strategy that puts data at its core will provide IT with a factual basis for identifying synergies, operational risks, and cost-saving opportunities, and support the new organisation’s digital business moving forward.

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