It is no secret that the most successful companies are the ones that constantly refresh and energize their growth strategies to capitalize on new market opportunities and remain competitive –both during challenging economic times, as well as in periods of robust growth. In addition to organic growth, leading companies also employ inorganic approaches to build and refine their portfolios, including mergers and acquisitions (M&A), divestitures, and carve-outs.
IT is often mismanaged as an M&A value lever. The importance of IT integration cannot be overemphasized because it has the highest potential for mistakes, due to complexities, time constraints, and the need for unified mobilization across the organization. This is compounded by leadership, employee, supplier, and shareholder concerns.
Effective IT integration is key in achieving cost and revenue synergies, which in turn, drive merger success. Typical challenges for realizing IT synergies include duplicated applications and infrastructures, divergence of IT and business objectives, and the seemingly uphill task of merging two distinct IT organizations – each with its own processes, policies, and practices – to maintain service quality and control costs.
“Effective IT integration is key in achieving cost and revenue synergies,
which in turn, drive merger success.”
The M&A deal lifecycle begins with defining the M&A strategy, which should be derived from the corporate strategy, and running through execution of the integration plans. Successful M&A deals not only embrace early IT involvement to ensure that business decisions are feasible from an IT standpoint, but also provide IT more time to prepare for the target state. Other IT M&A best practices include conducting an IT due diligence before the deal is signed, establishing the IT merger framework after deal execution, and engaging in detailed IT integration planning to successfully navigate, prioritize and execute the vast amount of required activities and complex dependencies.
- Conduct IT Due Diligence
The objective of IT due diligence is to gather IT-related information from the target company and strategically evaluate the opportunities, costs, risks, and potential value that IT can bring to the overall deal. Due diligence is typically a rapid exercise, ranging from a few days to few weeks. Consequently, focus should be on the major drivers: large risks that could result in higher costs and/or longer integration times, and major opportunities that could be leveraged to generate additional value. The extent of the IT due diligence effort should be based on an upfront assessment of IT’s bearing on the deal’s value creation logic. The scope of this due diligence should center on the critical elements of IT capability, including applications, infrastructure, business and IT alignment, management capability, IT spending and budgets, technological risks for business continuity, IT synergies, and capability across IT organizations. IT due diligence should also be closely integrated with the commercial due diligence effort to ensure alignment with the overarching corporate strategy.
- Establish the IT Merger Framework
Establishing the IT merger framework involves setting the context for the IT integration, including strategic objectives, business case for the new company, expected synergies, timeline, budget and integration costs, IT financial goals, overall communications, and expected IT integration organization. It starts with casting a clear IT vision that aligns with the planned business integration and overall deal aspirations. This vision should also be communicated across the IT integration team to ensure consistency in approach.Focus should start with “quick win,” opportunities that support financial objectives, such as canceling duplicate (non-strategic) projects, retiring duplicate systems, and rationalizing duplicate external supply (contractors, vendors, contracts).Beyond that, the IT integration program plan and program charter should provide guiding principles, milestones, and a high-level overview of how things will work, as the organizations implement the transaction. Further, the IT integration organization should be defined, including overall structure, roles, and responsibilities across various work streams. These work streams can include business applications, infrastructure, IT operating model, contracts & licenses, clean room / data room, synergies, and program management. In addition, IT program and change management should be mobilized and launched in order to, build the merger integration planning processes and establish the IT integration communication plan. In doing so, the team can help facilitate seamless decision making, status reporting, and issue resolution.
- Prepare IT Day 1 and Plan IT Target State
IT Integration Planning should be split into short-term IT Day 1 preparations, and mid- to long-term IT Target State Planning. The objective is to plan all the requirements for a successful integration, map and analyze current environments to determine the target environment and begin tracking expected synergies. The Program Management Office orchestrates the IT Day 1 preparations and IT Target State Planning. Day 1 planning should focus on the essentials, such as stability and security, financial and regulatory reporting, financial close, branding, vendor consents, collaboration, and communication. Additionally, demand management and careful prioritization are critical to mobilizing for appropriate business initiatives. Clear communication, CIO commitment, and comprehensive program rules lay the foundation for integration success. Effective governance and communication will help ensure that teams are working on priority initiatives, as well as signaling what is working well and what key roadblocks exist. This information flow will enable leadership to remove roadblocks and adjust course, as necessary. Clear decision rights will increase the speed of execution and allow focus to be applied to the right issues at the right levels within the organization.
Overall, time is of the essence, and there may not be perfect solutions at the onset, but priority should be directed toward solutions that carry key value drivers of the transaction. After all, each day of delay in the integration carries an opportunity cost.
- Execute Target State Plans
After Day 1, the target state plans for applications, infrastructure, and operating model, including change management, are executed. The objective is to complete integration activities and transfer responsibilities to the long-term IT support resources. Key activities include performing detailed design, development and testing, conducting training, communicating with impacted stakeholders in advance, and converting to the target environment. It is helpful to anticipate significant time and effort to rationalize operational processes and gain adoption across the enterprise. Active project management will also be critical, as disruptive changes will be introduced to a formerly stable architecture. Finally, monthly spend should be tracked to ensure that IT projects are within budget, and that delivery of planned IT synergies are on track.
The complexity of bringing together the IT systems and, more importantly, the services that the landscape of systems provides should not be underestimated. For most businesses, technology is the critical asset that enables creation of value for customers. The merger landscape is littered with missed synergy targets, business disruptions caused by systems migrations, and frustrated customers due to front line employees not properly trained on new technology systems. A thoughtful and carefully planned approach considers the elements above, as a first step to avoiding these situations.
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