OPINION: How can corporate IT add value to organisational mergers?
- 16 August, 2017 15:20
In 2016, there were 487 mergers and acquisitions in Australia with a combined value of $86.7 billion, the second highest recorded value since 2010.
Acquisitions are an exciting time for businesses but integrating organisations is complex and can introduce many unexpected challenges, especially in aligning IT environments.
Senior executives are focused on achieving deal value as quickly as possible, and IT departments are tasked with delivering IT integration programs while simultaneously ensuring business-as-usual tech support.
Research shows that IT, if leveraged effectively, can be one of the biggest enablers to achieving benefits in an M&A transaction due to the critical dependency on technology underpinning core business operations.
But the length of time to execute the IT integration program and the high one off implementation costs are often not adequately planned for, and this can quickly erode the values expected from the transaction.
CIOs need to be engaged early in the program planning phase, to build accurate IT integration cost estimates, identify potential issues and road blocks, and ensure appropriate IT skills and leadership are available for the program execution.
Daryn Saretzki, lead partner of EY’s Mergers and Integrations Oceania team says: “IT can drive substantial value from M&A transactions – detailed planning must be undertaken to support value delivery and reduce operational risk”.
A typical M&A scenario for a CIO
“We’ve just acquired a phenomenal company” exclaims the CEO. “This purchase will propel our organisation into the future and position us as a market leader.
“We need you and your IT team to begin integrating the IT systems, so that we can rapidly realise the benefits of this transaction. And I’ve promised our shareholders that this will be completed in the next 6 months!”
The CIO looks around their IT department, and sees a group of fatigued workers, toiling day and night on an ERP upgrade, a new CRM system, migrations to a new datacentre, and rolling out a more robust security solution.
So how is the CEO’s new number one project going to be resourced from an IT perspective?
Post-merger IT integration planning
IT integration planning should start in the pre-merger due diligence phase. A key deliverable should be the design of the future IT operating model, describing the future IT environment that will support the merged organisations’ business operations.
Once the deal is announced, further input from discussions with the target should be incorporated into the plan. CIOs must work closely with the business to develop post-merger IT integration strategies and plans.
There are several things that you need to do when creating IT integration plans.
1. Make sure that IT can provide adequate support from day 1 and that business operations are not interrupted.
2. Conduct an options analysis exercise to determine the future IT application landscape, infrastructure requirements and service delivery models. An assessment of the ‘best of breed’ systems from both organisations, as well as identifying systems that are duplicated or no longer required are important outputs from this exercise.
3. Align IT governance and progress reporting with the wider integration program to ensure that dependencies with other work streams can be properly managed and IT is not working in isolation.
4. Ensure the skills and resources required to deliver the IT integration program are secured and that business as usual IT support can still be provided.
The CIO of a European telecommunications provider explains their experience with a recent M&A transaction: “In our last acquisition, the business processes and operations were largely the same for the merging parties, but to get them in a common frame, on the same IT systems, was not easy.”
Post-merger IT integration programs
Post-merger IT integration programs are very different to traditional IT transformation programs. They are generally fast paced and high pressured with business executives heavily involved and making decisions very quickly.
Achieving deal value while supporting business operations is they key objective and this is used to motivate program teams.
Many integrations fail because the IT group is not aligned with the business or it hasn’t been included early enough. This is combined with limited experience planning and delivering these types of programs.
Post-merger IT integration issues and challenges
As with any technology program, IT integrations present many challenges. The lack of a clearly-defined IT operating model can create uncertainly as to whether the IT group can deliver an integration program that supports the business.
One-off integration costs are sometimes not accurately forecasted and CIOs are asked to justify why actual costs are significantly higher; while underestimating program complexity can lead to unachievable timelines and delays before value is delivered.
System entanglement can also really challenge IT departments and make it extremely difficult to quickly consolidate technology environments to achieve cost synergies.
Finally, a lack of skills and resources to simultaneously deliver an IT integration program and provide IT support could result in unplanned system downtime and business disruption.
A CFO from an energy provider who recently went through a post-merger integration program said: “IT always features as a significant part of the deal process.”
“One of the biggest problems is that people who are used to a certain IT system will be reluctant to switch to a new one. This can cause major delays because it takes time to migrate to the new system,” the CFO said.
Ultimately, senior executives recognise that a well-planned and executed integration program is paramount to a successful business acquisition.
CIOs have a great opportunity to use the post-merger integration program to reinforce the role of IT as a true business partner that can deliver value through technology-enabled changes.
Zev Friedman provides advice to clients on post-merger IT integration programs, based in the EY member firm office in Sydney. He can be contacted on 0416 121 221 or at firstname.lastname@example.org