IT - the key Enabler for a Successful Merger & Acquisition
"In the flurry of activity associated with Mergers & Acquisitions (M & A) or Divestitures, business synergies and savings are uppermost in people’s minds. What is often overlooked is the enabling role of IT. It is well known that the majority of the M&A’s do not deliver their projected objectives and IT can be one of the issues. Bill Fairclough identifies the key strategies and pitfalls for IT in a Merger & Acquisition."
The Negotiating Team and IT
Problems can arise as a direct result of the negotiating team not having an IT background, and therefore not understanding its importance and so the IT impact is over looked. Typically this in the area of Business Process synergies where the Business Process change requires significant IT changes to support the new Business Processes. It is very important for IT to be close to the Negotiating Team and to ensure that the IT impact is fully communicated.
Due diligence – assumptions, facts & decisions
It is essential that the Due Diligence process has the best IT estimates possible. This will start with making assumptions on the Business Process Standardisation and which IT systems will be used, the time-scales involved and potential savings achievable. The Business Process assumptions will need to be led by Business areas that own the processes but with significant input and advice from IT.
For IT applications, the recommended approach is to identify all the IT systems involved, their scope and support costs. Often, it is not until the due diligence phase has been completed that all applications are identified and the planned application integration agreed.
This is because many of the systems may not be under the direct control of the IT Department. Typically, these could include Product Development, Finance and HR. Some systems may also be outsourced or off-shored resulting in difficulties compiling the required data. To minimise this risk, contingencies will need to be built into the estimates.
For IT infrastructure – including Data Centres, Telecommunications, Workstations and PCs – due diligence will need to establish an inventory of the hardware and software, the operating costs and potential infrastructure efficiencies.
For large multi national M&As, an IT group should be set up to co-ordinate and manage due diligence activities. The group needs to be kept as small as possible to ensure confidentiality, and yet have access to enough relevant knowledge to make the required decisions.
As soon as negotiations allow, all assumptions and estimates should be checked by the relevant departments to validate the plan estimates and make any adjustments. It is also important to obtain ‘buy-in’ for the plan from the group that will have to implement it.
Other key IT issues for M & A
Speed – IT must be fleet of foot and proactive in the M&A process. Key will be to identify the short term priorities to enable the merged or divested Companies to become operational. This could for example involve infrastructure like the IT security of the network or IT applications such as Financial reporting requirements. A medium and long term plan will also be required to support the long term business goals of the M&A, for example with full Business Process standardisation across the Merged or Acquired Company.
People Issues
It is very important to handle the people issues sensitively. Often M&As will require IT redundancies or people having to take on new roles and reporting to new Managers. It is important that the IT Management team that will manage the new merged company is established quickly. This should be a fair process with the newly acquired people having equally opportunity to apply for the new Management positions. This new Management team will have the role identifying their new teams and handling the separation of people that will be made redundant.
Alignment of Business Representatives and IT Managements
Obtaining agreement from the Business representatives to the end state Business Processes can often be a source of conflict and delay. Also, the IT Management Teams of both parties must be aligned. This can lead to debates and delays about which Systems to sacrifice. It may also mean replacing certain IT managers to enable progress.
Business & IT Capacity and Subject Matter Experts – The incremental workload that comes with larger M & A/Divestitures will put considerable strain on Business and IT Departments. This can only be resolved by Senior Management directing and prioritising the project. An additional bottleneck can arise with Business and IT Subject Matter Experts who understand the operating Business Practices and who can identify and agree the proposed Business Practices.
Change Management Plan
Have a Change Management strategy in place – Once the Business and IT plans have been agreed, it is important to have a Change Management strategy in place. This should communicate what the future changes will be to the relevant Departments and engage their support for implementing the Change.
Project Management and Metrics for Change
To co-ordinate the Cross Company/Cross Departmental issues that are integral to larger M & A/Divestiture programs, a dedicated Program Office should be set up. This office will control the financial and launch timings of the overall project and implement a standard set of Program Metrics.
The Vendor’s Role
Vendors will have a significant role to play in the Change process and they will need to action any Product/Data issues required to deliver the program. In general, however, it is not recommended that an external Vendor should project manage the IT program. On larger M & A programs, it may seem that there is no alternative, but this should be resisted if possible. Not only could it prove to be costly; it may also result in more Program complexity by introducing a third party without the knowledge of the companies involved.
Phased implementations minimise the risks of Change – Many changes introduced by the M & A process will impact the whole business. If not implemented correctly, they could have an adverse effect on key aspects of the business such as the Financial IT Systems Changes or Sales & Purchasing IT Changes. To minimise the risks, phased implementations are recommended. Eg Financial related changes, Product related changes etc. A number of ‘Dry Runs’ will be needed to ensure that the Change process is robust. Also, Business Subject Matter Experts need to be heavily involved to check data integrity and new business processes.
Divestitures can be more difficult than M&A's
Divestitures often involve complex issues requiring considerable co-ordination between the parties concerned. Also, there may be non-movable dates that must be met. This often involves packaging running Applications and passing over the code and data to the newly-divested company. This will involve knowledge transfer to the new IT support team, as well as up-to-date documentation. For old and complex systems, this may be a significant issue.
A fixed period of ongoing Application support after the Divestiture by the Originating Group must be carefully planned.
Other issues include Security, and this could involve network separation, revised access controls and data separation. Commercial contracts will need to be reviewed to ensure quantity discounts are appropriately revised.
IT – A key Enabler for success
It’s very clear that M & A and Divestitures have significant IT implications. This will result in challenges for IT to ensure that the resulting projects are properly planned and implemented.
By making sure that all measures are in place for a smooth transition, IT will indeed be the enabling force it should be in every M & A and Divestiture.
Bill Fairclough has worked in IT for 31 years and between 2005-2008 was the Chief Information Officer for Ford of Europe. He played a major role integrating Jaguar, Land Rover and Volvo into Ford IT Systems and more recently was responsible for the separation of Visteon from Ford of Europe IT. He also supported the initial phases of the J&LR IT separation. He joined Woburn Consulting in 2009.
