If customers are the lifeblood of a business and staff the vital organs, then IT is the skeleton holding everything together. So, given its pivotal role, why is it that IT is so often overlooked within a business merger?
Logic would suggest that as technology now underpins the way organisations of all sizes and sectors operate, this would be a key consideration during the due diligence process involved in buying a business. However, according to McKinsey, this is not the case.
The global consultancy firm states that between 50 and 60 per cent of post-acquisition initiatives or ambitions rely on IT – this includes things like reducing costs, streamlining processes, improving customer service or even decreasing staff numbers. Despite this, McKinsey says: “Too often, this key information is overlooked… most IT issues are not fully addressed during due diligence or the early stages of post-merger planning.”
This is a warning that must be heeded. After all, the reason for buying a business is to enable, enhance or accelerate growth. Not addressing business technology issues within the acquisition process will hinder a buyer’s inorganic growth strategy, creating delays and triggering additional unforeseen costs.
Invite IT to the party
Smooth integration is essential in ensuring the success of a business purchase, but this extends beyond issues regarding staffing, branding, and products or services. Databases, software and IT systems – such as customer relationship management (CRM) tools – will dictate the way a company works and thus deserves a great deal of attention. Failing to account for the compatibility of these systems will make progress in the immediate aftermath of an acquisition very difficult.
If a business buyer is to hit the ground running with their latest purchase then technological considerations will need to be made. Of course, this does not mean that acquisition targets ought to be selected based on which piece of hardware or software they use, but simply that these technologies must form part of the due diligence process so they can be carefully factored into a post-acquisition growth strategy.
The critical shortcoming of many business buyers in this area, according to Deloitte, comes from a lack of consultation with IT experts; either in-house or external advisers. A study by the firm states: “Fewer than 30 per cent of companies actively involve IT in pre-close planning during M&A activity.”
Given the way the world of business technology has evolved in recent years, this is worrying.
IT has transformed from a back office department concerned with ‘keeping the lights on’ to instead becoming a critical part of a company’s future growth. The emergence of cloud computing and big data has made technology an area for significant competitive advantage – from the speed companies can get a product to market through to providing real-time insights into customers, applications or networks; IT must now be recognised as an important weapon in a company’s arsenal as they battle for market share.
Consequently, gone are the days when the CEO or directors of a business can make decisions on acquisitions and strategies alone – the CIO, CTO, head of IT, or whatever their moniker may be, must now be consulted. In much the same way as their role has developed in the boardroom, technology chiefs must also have far greater input when it comes to mergers. This way they can pinpoint potential pitfalls, highlight timeline concerns and offer suggestions for how to best move forwards.
But that’s not all; a merger offers a good opportunity to review both companies’ existing IT systems and assess if there are better options available, not just to save money but to innovate. As stated, cloud computing and big data are among the trends that are making it easier and cheaper for businesses to innovate, so receiving input from those in charge of IT during the acquisition process can also bring new ideas to the table.
Maximising value, minimising risk
There are a range of different approaches a business buyer can take when deciding how to address the IT question during the merger process. The first option is to take the ‘best of breed’ of each technology and adopt this across both companies. The second is to decide which of the two organisations has the best equipped IT environment and set about migrating the newly merged firm across to this. Or, if the buyers take the chance to conduct an overhaul of the existing IT systems, then new ones can be adopted.
Each of these approaches presents its own benefits and challenges. However, regardless of which approach a buyer opts for, what really matters is that a thorough assessment of both companies’ IT systems is conducted during the acquisition process so one can maximise value and minimise risk. This will make the task of integrating the acquired business with the existing business a far quicker and easier process, which in turn will enable faster post-merger growth.
The example of a merger between pub operator Spirit Group and Scottish and Newcastle Retail (SNR) illustrates the benefits of taking a proactive approach to addressing IT. Once it had bought SNR, Spirit did not want to take an ‘ours or theirs’ attitude for choosing the IT systems to proceed with, instead opting to cherry pick the best of what both firms already had to offer.
Jane Kimberlin, IT director at Spirit, says the “mix-and-match method” is the most “challenging and scary”, but she believes that by completing a full examination of all the existing systems and applications a team can set about deciding where the value and risk lies in the acquired firm’s IT suite. Having consulted with different departments, Kimberlin was able to determine “which system most suited the way we needed to work going forward”.
Critical to the success of this project, Kimberlin asserts, was being able to get involved as early as possible. This gave her and the senior team time to make well thought out decisions and implement their choices.
Hit the ground running
Once a deal has been completed, in the bid to clear hurdles out the way and hit the ground running, IT’s input is essential. Financial records, payroll systems, databases, and communications tools – these all must be ready from as close to day one as possible. Inevitably, therefore, one must assess how to best achieve this from early on in the process. Indeed, the message here is clear: the earlier IT is brought into the equation the better.
IT is fundamental to the way we live and the way we work. Simply put, no one can afford to overlook technology when considering any strategy for growth – whether that is organic or inorganic. And for the latter, when it comes to short-term integration and long-term success, a business buyer who puts technology at the heart of the acquisition process will stand a far greater chance of being successful in the M&A market.
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