As organisations focus on strengthening their balance sheets amid global financial uncertainty, CIOs should be preparing for mergers & acquisitions (M&A). Executives must deliver value to their shareholders and effectively manage organisational risks. M&As, however, will present significant challenges to executives as the potential for hostile takeover bids or friendly schemes of arrangements increase.
It is often said that M&A failure rates are high; that the intended value of such deals is rarely met and integration risks rarely realised. Few IT organisations possess the appropriate expertise for M&As, yet organisational success is dependent on IT’s successful integration.
CIOs must take steps to understand their environment, industry and the likelihood of M&A activity confronting their organisation. Ask yourself: Are you a potential acquisition target or will your organisation actively identify acquisition targets? Obtaining an insight into your firm’s situation and intent will ultimately set the tone for necessary IT preparations.
The IT integration framework
CIOs can enable their organisations to successfully integrate new businesses by preparing the essential ingredients of IT integration.
One way in which CIOs can prepare is by directing the development of a tailored IT integration framework into their broader IT governance model. It should be developed in the context of the CIO’s organisation, IT strategy and the IT operating model. At a high level it would encompass three stages:
- Due diligence
- The first 100 days
- Post-100 days.
Due diligence sets the tone of the acquisition and the subsequent integration of an organisation.
The CIO is not always across the initial screening and candidate evaluations of acquisition targets. Due diligence is required once a target is established, however, and IT must be ready and able to perform. Successful IT integration requires CIO direction and starts with an assessment of IT’s readiness for integration.
Are you ready and able? A checklist for organising a comprehensive evaluation of the target’s assets, liabilities and capabilities provides the foundation of due diligence. Its major objective is to identify the material risks in the target company which may impact the value and therefore the purchase price of the target company.
It also provides an opportunity to identify potential IT synergies, estimate the costs of integration and develop a plan for the first 100 days of IT integration. Due diligence sets the stage.
The IT integration framework should include documentation that provides a minimum assessment criteria for IT to undertake due diligence. Checklists and guidelines designed in the context of your organisation’s IT operating model and architecture are essential.
It is important to recognise that acquisition and integration are not the same. Acquisition is about valuing an asset (the target company) in its own right. The decision by the business to ‘integrate’ the asset is a separate consideration.
The questions IT asks will allow management to assess both the value of the acquisition from an IT perspective and the integration implications of the potential target company.
No two acquisitions will be the same; you will need to make a judgement as you conduct due diligence as to the additional information that is required from the target to ascertain the material IT risks. Plans will be influenced by the specific business strategy and objectives of the individual M&A.
Due diligence checklists and frameworks are widely available but they are only one aspect of IT integration. Due diligence and IT integration require expertise, resources and leadership. CIOs must be prepared beyond due diligence and set the direction for IT integration, starting with the first 100 days.
Evan Thomas is general manager of IT integration with Medibank Private. He was the CIO at Australian Health Management for more than five years and is currently developing Medibank’s IT integration framework.
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