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M&A: Strategic Opportunity for Businesses

I was recently asked to help evaluate an IT department’s readiness for their company’s new strategic direction – the acquisition of multiple companies in a relatively short timeframe. The company’s acquisition strategy, while new for them, was not unusual or unexpected.

A recent publication by Deloitte notes that private equity firms expect to increase both the number and size of M&A deals in the coming year[1]. Sadly, the foresight to assess IT readiness (especially in the small/midsized business space) was unusual however, but I believe very wise.

IT systems and processes underlie all business functions. Depending on the strategy employed for a merger, the IT impacts could range from simple integrations all the way through to full systems integration/migration, as well as an extension of IT service delivery (e.g. systems support and operations) to the new acquisition.

Extending service delivery can be a major impact, especially when the companies in question are small to mid-sized businesses. A single merger in that space can easily represent a 25% or larger increase in the IT footprint (measured in IT-enabled workers, infrastructure and systems).

Because IT systems and processes underlie all business functions, the impact of poor post-merger integration goes far beyond the IT department into core areas of the business.

I have worked to correct major IT integration issues in the past, and a particular example springs to mind from the mid-sized construction space. A construction company bought another in an adjacent market, a move which was strategic and had high value. However, planning for post-merger integration almost entirely left out IT readiness.

The results:

  • Major differences in business processes led to a desire to integrate systems rather than migrate the acquired company. However, IT was not ready or able to handle system integrations. This had numerous knock-on effects:
    • Financials could not be systematically rolled up. Monthly, quarterly and year-end closing processes, as well as bank filings, were manually intensive for 24 months after the merger.
    • Responses to financial audits were also labor-intensive, and as a result were significantly higher risk/lower confidence.
    • Operations processes suffered as well, and the business had to resort to using temporary labor/manual effort in order to keep operations from slowing.
  • Lack of readiness and planning to extend IT services (help desk, desktop support, employee onboarding/off-boarding etc.) to the acquisition resulted in a massive drop in IT service levels. The acquisition had extended the IT service footprint by roughly 30%, the impact of which was not anticipated.
  • The acquisition lost key people, and poor IT integration contributed – it was called out specifically as a cause of low morale/high turnover post-acquisition.
  • The cost of integrating IT systems and services was 4x the anticipated cost, and took over a year longer to achieve than originally planned.

That’s the horror story of what can happen when IT readiness isn’t understood. But imagine another, much more proactive scenario:

Your company’s M&A planning generates a few likely integration scenarios prior to executing the merger. An IT and systems readiness assessment is performed against those scenarios, looking at (among other things):

  • Business process readiness – there needs to be a high degree of understanding of core business processes, both within the business and within IT. IT is paralyzed without requirements, and business processes are where they come from. If subject matter experts in those processes are unavailable or missing, integrating systems or migrating new people to current systems will be challenged.
  • Architecture and systems readiness – is the enterprise architecture outdated? How does it mesh with likely acquisition targets? Are current applications and infrastructure healthy and stable? What interface options are there, and is IT currently staffed to handle their development and future maintenance? If not, what contract/partner options are there to farm out that work, and at what cost? Answers to these questions may lead to a portfolio of “get-healthy” infrastructure and applications work.
  • Service delivery readiness – depending on the post M&A integration scenario, IT may be called upon to extend services to a significant number of additional workers. Is support staffing adequate or will it need to be shored up? What is likely to happen to acquisition staff? Will they join the IT team, and if so is IT ready to onboard them? Answers to these questions may lead to changes to the IT organization and/or improvement projects to make better use of current staff.
  • Vendor contracts and commitments – are there potential impacts to these as a result of a merger?

Gaps highlighted in the assessments lead to narrowing of integration options to those which are most cost effective and likely to succeed in required timeframes. Projects to achieve readiness are planned and executed in time for the merger to occur, setting up the post-merger integration activity for success.

Which path is your business headed down? We can help. Perficient offers effective and experienced M&A management consulting, backed by proven technology strategy and implementation services which you can use to ensure post-merger integration is successful.

 

[1] Deloitte, The State of The Deal, M&A Trends 2018

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