Whilst many of the potential pitfalls are researched during the process of due diligence - from organisational synergies to cultural match - one critical consideration often left to chance is ‘technology fit’.
M&A activity is typically the pursuit of organisational growth, customer acquisition or economies of scale. At the heart of all these strategies is the successful integration of enterprise data systems across the two organisations. Whilst technology fit is less well prioritised as an early indicator of success for businesses seeking to acquire or merge, it can create costly and time-consuming challenges down the line that hinder the newly formed entity in reaching its investment return.
In order for the merger to be a success IT leadership needs to be involved earlier in the M&A journey to better equip organisations in realising success earlier and at a lower cost.
1. In pursuit of the perfect fit
Due diligence is an essential, often lengthy, stage in the process of merger and acquisition. It is a period of disclosure designed to make the companies involved comfortable enough for the deal to progress with a likelihood of closing successfully. With other interested parties usually also involved, due diligence is further designed to secure critical elements of finance, equity and support, but rarely to address the fit of two separate enterprise technology systems.
This is a time for opening the closets so that any skeletons are known. A period during which a great deal of business critical information is shared – too much for the activity to be brought to a halt later on down the line when other issues emerge or unforeseen costs start to rise. Though IT is rarely part of due diligence, it is critical in achieving all of the goals outlined earlier, and businesses would benefit from involving technology in discussions from an early stage. Whilst every situation is different, the following aspects provide a useful starting point for consideration:
2. Mapping the new enterprise infrastructure
With the technology lead engaged in planning there is a greater likelihood of maintaining ‘business as usual’ immediately post-M&A, while also more rapidly demonstrating benefits of the new entity to customers, employees and investors alike. Immediate goals include minimising costly systems’ downtime and ensuring customer service continuity.
Planning needs to start early in the due diligence process to cover an audit of both company’s systems to understand the assets, app subscriptions, demands and skills available in each, as well as where resources are duplicated. If the goal is to combine the entities, as is usually the case (rather than continue to operate separately) then the next step should be to create an enterprise infrastructure map for the newly-formed organisation. Sharing customer databases, leveraging economies of scale and integrating CRM or CIM systems all require the planning of a target end game.
Knowing where duplications exist will equip IT leadership in making decisions over whether to unify operations onto a single system or create integration paths to solve basic challenges in the short to mid-term. This is particularly relevant with the compatibility of database-run systems that support customer service, core business operations and financial management, and there are cost / benefit analyses to consider for each and every item within the infrastructure.
This is an intensive exercise that will provide a detailed plan on which to critically assess the cost and timescale of IT integration and transition.
3. Skills and training
During the process of due diligence, it is usual to assign a specialist team to change management covering staff moves, role realignments, redundancies and cultural shifts. But how often is the same principle applied in to change in the IT environment?
In many cases, businesses report a period of confusion in the state of post-merger or acquisition. On one hand the feeling of ‘business as usual’ can linger on in the IT domain so that employees, customers and suppliers don’t experience any change. The longer this status quo persists, the more costly it can be to the business and the more time it will take the organisation to realise the overall goals.
Forward planning would enable the IT leadership to actively set up solutions for challenges of integration in the post-M&A period of change, when the organisation may be most accepting of upheaval.
Most importantly, there is the need to pre-plan to ensure that the right skills are on-board to manage integration of systems across the two entities from day one. Many organisations start integrations without having appropriate experience with the applications, vendors and tools that they are using - treating it as just another IT project rather than an area of specialism, which is a particularly dangerous approach. In fact, this is where the majority of problems begin, since integrations tend to introduce new and different variables that most IT teams don’t face on a regular basis.
The ability to identify specialist skill requirements early in due diligence enables a company to prepare the right team to deliver a seamless integration, quickly and cost effectively. Furthermore, IT skills planning is an essential part of change management. It is vital that the newly-formed IT support team is uniformly trained on the solutions operated, whether migrated from the acquired business or installed into the new entity. End users need to fully understand how the resulting system works, and how to enter data consistently and accurately in order for the newly formed organisation to operate efficiently and reliably.
4. Data security, integrity and GDPR
Whatever the operational goals for the M&A, data is usually the precious commodity and it is vital that it remains secure and accurate at all times during the transition process.
Data protection has become a feature of M&A due diligence since introduction of General Data Protection Regulation (GDPR) in 2018, and certain aspects of data management will be under scrutiny. The acquiring organisation will want to know whether personal data stored in the customer contact systems has consent for use post-M&A, otherwise it loses its value. From a technical perspective, there may also be a change in assigned data ‘controller’, which would need to be communicated to impacted individuals in the database and is likely to require read / write controls to be managed. All of this is easier in an integrated environment where data sharing is created through database links rather than import / export activity that exposes data to security risk.
5. Planning ahead
Planning ahead allows the IT leadership to map and control the secure transition of data between systems that are going to interoperate in the post-merger / acquisition environment. The challenge is how to do this across two formerly independent entities without disrupting day-to-day business.
Integration-platform-as-a-service (iPaaS) solutions can build a test environment that creates connections between existing business applications outside of the live business operation. With links in place, databases can be connected and tested while the organisation operates in the ‘live’ setting, with data integration, management and update between new and existing sources. This maintains data integrity within the source database, whilst identifying what works - and what doesn’t - in an integrated environment.
The same iPaaS can also flag inconsistencies across data in the same field across different systems. This is particularly useful in customer, logistics and finance databases where common fields containing different information can result in customer service issues later down the line. It enables cleaner and more useful data from combined systems, quicker, without transferring any data outside of the field that might compromise integrity or security.
The price of an incompatible alliance
The process of due diligence is designed to identify areas of significant challenge, cost and complexity in the joining of two entities through merger or acquisition. If technology isn’t considered within this scope, companies could incur higher costs and delays to realising the full potential of the merged organisation.
Without proper planning, systems can become over-stretched with risk to data security or systems requiring total replacement rather than a more cost effective solution. On the other hand, efficiency gains and cost cuts can be missed if the organisations continue to operate as separate entities.
Elevating ‘technology fit’ on the M&A agenda will support a planned period of transition that has a clear focus in line with the overall objectives and operational goals. Rather than fire-fighting in the aftermath, a planned approach will enable basic challenges to be prepared for well in advance.