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Vendor View: Mergers, Acquisitions and Surprises

Mergers and acquisitions usually pass through six stages. Allen Shatten, proprietor of information technology planning company Lattice IT, explaining why cost-savings targets are often not met -- and what can happen when CIOs sign off before completing the necessary homework.
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Mergers and acquisitions are curious animals. There are vast differences between pre-acquisition expectations and post-acquisition reality. 55% of acquisitions fail to meet cost-saving targets . Only 31% of acquisitions are proven to create value .

Pre-acquisition activities are driven by visionaries and deal-makers. These folk are essential to the deal but they are not renowned for their interests in matters of fine detail. Post-acquisition, sooner or later, the facts prevail.

We were participants before and after a merger involving two very similar businesses in Australia and New Zealand respectively. The businesses are highly information-centric and heavily IT-dependent. Pre-merger investigations proceeded over many weeks; the IT component of these discussions occupied less than one day.

The Australian platform was big, secure, reliable, functionally rich and technologically obsolete. Some said it was expensive to run. The Kiwis promoted their platform with passion and eloquence but little evidentiary support. It was fast, modern, cheap to operate and had been sold to overseas agencies. Maintenance was efficient and new products could be launched in a few days. The merger went forward on the basis of consolidation onto the Kiwi platform.

Post-merger, we were engaged to devise the consolidation works program. On investigation, the Kiwi platform revealed itself to consist of five separate systems, each containing different functionality. The total function set across the five systems did not meet Australian requirements. Maintenance was cheap because testing was performed on production versions. Security did not meet audit parameters.

The Australian dinosaur was retained with reluctance. Over the next few years, after several further expensive studies into consolidation options, all the original platforms are still running. By and large, process and IT synergies have not been achieved. Financially, pre-merger expectations have not been met.

We’ve completed seven IT planning engagements following mergers or acquisitions. We’ve found that business process integration, which almost always depends on IT integration, is under-researched, under-estimated and often undelivered. Consequently the anticipated synergies are not forthcoming, even though the new combined enterprise ends up with similar operations on three or four different platforms.

In five of our seven cases, similar business operations were supported by at least two incompatible legacy platforms, for which the cost and effort of integration was prohibitive. In two of these five, it was decided to consolidate all operations onto one of the platforms. Consolidation was achieved at great expense, disruption and -- in some areas -- frustration at lost functionality. The end results are not entirely satisfactory as the surviving legacy systems are under more pressure than they were before. Most of the anticipated synergies will be achieved, but more slowly and at greater cost than was predicted.

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