• December 10, 2015

Important Considerations During a Merger or Acquisition

A merger or acquisition is typically executed because business leaders see the potential to add value through a larger/combined entity. The value could be aimed at expanding into new markets; extending reach within current markets; solidifying or growing market share; enhancing the combined company’s competitive position; acquiring strategic assets or services; and/or accelerating growth.

There are, in fact, many reasons companies combine resources through mergers and acquisitions, and no two deals are exactly the same. However, while each merger or acquisition may be different in size, scope and structure, most deals today typically present significant challenges for the acquiring/surviving company in terms of integrating technology across the combined entities and in combining business processes. As noted by market research firm Gartner:

Reaping the benefits of a merger or acquisition is a notoriously tricky business. Outcomes are uncertain, previously unknown or unimportant facts suddenly emerge as critical, and there are many moving parts to control. On top of all this, the business must continue to serve clients, run operations and execute in the face of major, often disruptive, integration activity.

In examining the processes involved in integrating technology and combining business processes, organizations will typically need to address the following challenges:

Duplicate systems and applications:

Each organization already has its own systems and applications in place for all business functions—human resources, finance, sales and marketing, customer relationship management, etc. One of the important challenges for IT is to rationalize these systems and embark on a roadmap that leads to the optimization of IT resources. This process must be undertaken with a view to improving upon existing operations.

Disparate practices and policies for information management and governance:

Each organization has its own processes and policies for information management and governance. The organization needs to be able to make sense out of the data coming in from the merged or acquired company. IT often must deal with fragmented data stores across organizational silos, leading to poor integration of information, which can negatively a ect the customer experience, worker productivity, security and the company’s overall brand image.

Different approaches, different cultures:

The two organizations may have different approaches to addressing technology and business challenges. One organization, for example, may strongly believe in sourcing solutions internally, while the other may be far more inclined to outsource. The approach to cloud computing can pose another cultural challenge: One of the companies may be a proponent of the cloud and utilize private, public and hybrid clouds, while the other organization may have a predisposition to not utilize cloud solutions or to use them in moderation. At some point, a single strategy will have to emerge.

Undoubtedly, the strategies and solutions involved in integrating IT and combining business processes pose significant challenges. Yet they also present the organization with a considerable opportunity to set things on the right path and create a more efficient, progressive and forward-looking IT environment.

With the right plan in place, the organization can eliminate redundancies, reduce costs, achieve rationalization, add efficiencies and extract significant value out of the combined operation. How can an organization successfully address the IT and business process challenges posed by a merger or acquisition? Here are three important steps:

Modernize IT

The integration of IT systems is imperative unless the acquired entity is intended to operate as a separate unit. By definition, integration of IT systems will result in disruptions. Enterprises should take this opportunity to not just integrate the systems, but also to rationalize and modernize the IT environment so that the end result is an optimized system, and not a compromised system.

There will be duplicate systems and applications, and it is highly unlikely they will work together without a major migration and transformation process. The enterprise must develop a strategic modernization roadmap to determine what needs to go, what needs to stay and what needs to change. There will also be significant challenges in determining how and when to migrate applications and applications elements onto new systems.

An important aspect of integrating and modernizing IT and combining business processes is recognizing that the integration must take place with as little disruption as possible to operations. This is one area where it makes sense to work with an outsourcing partner that has experience working in cloud computing environments because using the cloud can be an important aspect of this process.

As the organization goes through rationalization and modernization, it may actually have to expand the IT environment before it consolidates it. The cloud provides a great opportunity for elastic scalability, so the company doesn’t have to invest money in additional hardware for the transformation. Using the cloud enables the enterprise to execute its modernization journey more smoothly and at a much lower overall cost.

Gain new efficiencies

This transformation period is actually a great opportunity to look at the organization’s overall IT approach and make critical adjustments for the future. It might be decided that the best solution is not one company’s over the other’s, but a combined solution—or even a completely new solution altogether.

This is also a chance to look at all solutions and to explore whether outsourcing particular aspects of IT or the business makes sense. For example, many companies will look at the challenges involved in merging two disparate finance systems and will allow an outsourcer to take on the processes of migration, unification and business process integration.

As one example of a company that has used acquisitions as part of an impetus to gain new efficiencies, a leading financial services company in Spain acquired a number of regional banks in 2013.

To integrate the new additions quickly and cost effectively, the acquiring enterprise outsourced many specific operations and put in a new system that would give it greater visibility into operations. This involved adapting a commercial systems-monitoring product for real-time business monitoring, while capturing data from disparate sources. This new operational business control center has transformed the organization’s back-office operations and made them far more effective.

Work with an experienced partner

One of the biggest questions for any business leader driving a merger or acquisition is whether the organization has the expertise in-house to handle this type of major transition in IT and business process transformation. Working with a partner experienced in all aspects of IT integration and business process combination can make the difference between a merger or acquisition that reaps significant business value or one that fails to achieve its potential.

By working with an outsourced service provider, for example, the financial services firm discussed earlier was able to create a roadmap of new business process innovation, while aligning business processes with the technology infrastructure to improve interoperability and lower supplier costs. The right partner should be able to deliver:

  • Well-defined and proven methodologies tailored to your industry and unique integration needs.
  • Architectural capabilities to minimize the risk and impact of consolidation.
  • The ability to understand your legacy systems, applications and business processes, along with the corresponding ability to expertly combine them.
  • A proven understanding of the trends and issues affecting your business and industry.

Conclusion

A merger or acquisition will often be one of the defining events for a company and its leadership. In today’s environment, integrating IT and combining business processes will often be key determinants in whether the deal is deemed a major success or something less than that. The transformation of IT and business processes can also be regarded as a major opportunity to rethink IT and business operations, positioning the company much more progressively, with a more modern, agile and scalable IT environment.

For IT and business leaders, focusing on integrating IT and gaining new efficiencies through the merger or acquisition process will be critical to their futures and that of their companies. Working with an experienced partner throughout this transformational process provides the best opportunity for success and the best chance to position the company and its IT operations for the future.