The Strategic Value of IT in M&A Pt. 2: Integration With the Lights On

James Cotton
May 15, 2019

At the end of the last millennium, Bill Gates famously observed: “Information technology and business are becoming inextricably interwoven. I don’t think anybody can meaningfully talk about one without talking about the other.” Yet, fast-forward 20 years to the era of digital transformation and data-driven operations, and this reality is still overlooked by many companies embarking on mergers and acquisitions (M&A) – even though a sizable proportion of the initiatives designed to capture synergies are closely linked to IT.

Surveying the IT Landscape

As I discussed in my previous blog in this three-part series, IT executives don’t always get the seat they deserve at the due diligence table. As a result, CIOs can miss out on crucial insight, such as any incompatible platforms that will need a temporary workaround, which legacy systems actually support the value chain, or whether documentation will be made available on the target’s architecture and systems. And they may not have a sufficient grasp of the M&A initiative’s business goals to plan and resource the practical steps needed to achieve the agreed-upon synergies.

Consequently, organisations are still struggling to establish a fit-for-purpose approach to IT integration – one that enables them to knit together the systems, processes, and data of two companies and simultaneously maintain operations to support day-to-day activities. It’s what we at Information Builders call “integration with the lights on.”

Consequently, organisations are still struggling to establish a fit-for-purpose approach to IT integration – one that enables them to knit together the systems, processes, and data of two companies and simultaneously maintain operations to support day-to-day activities. 

Hitting the Ground Running

The pace of M&A has never been more aggressive, with the average integration planning window from announcement to close now typically less than 120 days. The trouble is, the legwork of integration has to start long before the deal is done, so that the merged organisation can hit the ground running from day one.

Integrating operations is no mean feat, given today’s fragmented corporate IT architectures, and the number of critical functions that IT enables – from finance and logistics to HR and customer relationship management (CRM). A thorough evaluation of the target company’s technology is needed, beyond its book value, if the purchaser is to ascertain how it will complement his or her own IT strategy and operations, which legacy systems to keep or kill, and what data to migrate to his or her own platform. What’s more, any costs involved in upgrading a system that has suffered from under-investment may need to be factored into the purchase price.

The Blueprint for Absorbing Future Acquisitions

This was exactly the challenge facing one of our customers: a leading manufacturer of beauty products. During a period of rapid expansion, the company embarked on a series of strategic acquisitions, which included several household-name brands. As part of the deal, the manufacturer inherited a complex digital ecosystem of hundreds of applications and systems with no IT backbone or provenance, together with 20 additional distribution centres and 10,000 employees. To keep the supply chain running smoothly and maintain product launches at key points in the retail calendar, the manufacturer had to find a way to coordinate data about logistics, finance, and other important activities, and continue to process a high volume of transactions with third parties.

The customer had initially addressed its system integration requirements with home-grown, point-to-point interfaces between applications, but this manual approach to integration wasn’t sustainable – it would have taken too long, cost too much, and possibly impacted revenues. We were brought in to unify a patchwork of technologies, on-board new streams of data, and extend and operationalise business processes faster, more reliably, and at scale. We deployed our integration middleware framework to streamline and automate operations by tying together disparate internal systems, as well as those maintained by the customer’s external partners.

The Roadmap to the ‘Future State of IT’

One thing many purchasers have in common is that, with the benefit of hindsight, they wish they had focused on IT integration sooner. All too often, the stars seem to be in alignment, but the intended synergies don’t materialise because companies failed to adequately map the journey from the two legacy architectures to the target operating model. Without a clear picture of the ‘future state of IT’, it’s harder to determine the optimum route to take, and cost estimates may prove far too conservative.

Prospective purchasers also stand to capture a broader range of synergies by getting their own house in order before approaching the negotiating table, as the risk of M&A failure is only heightened by fragmented IT architectures. That might involve rationalising multiple instances of enterprise resource planning (ERP) or CRM systems, or standardising their existing platforms, processes, tools, and data management practices to absorb future acquisitions faster and with less friction.

In the third and final blog of this M&A series, I’ll be delving into how organisations can unlock the true value of synergies through the consolidation and optimisation phase.

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