Consider a typical M&A scenario: Business leaders have been in talks for 30 days before informing IT that they’re making an acquisition. They have made a number of assumptions about technology, including many of IT’s highest impact areas. IT scrambles to make sense of things and perform due diligence under a tight deadline. IT finds that various estimates are off by a few million dollars and is put in a position of reacting, with very little time and ability to correct the erroneous assumptions made by the business team, potentially jeopardizing the deal.
Isn’t it odd that technology plays a crucial role in every part of the business today, yet many businesses still hold on to old assumptions that IT is not a strategic partner, that technology is something to be followed up on later? They may need help seeing what they’ll gain from having CIOs and IT leaders involved in M&A talks from Day One, but it’s up to IT to make the case for their inclusion.
At the end of the day, the point of any M&A event is about realizing synergies that deliver cost saving, revenue, capital, or all three—and IT must show that it can add value by working closely with business leaders and making extensive preparations to handle M&As effectively.
Making the case: the role of IT in supporting M&As
Involving IT leaders early in the deal would equip them with the information they need to balance the complexities of integrating IT assets and systems and sustaining business momentum. They would be able to make better decisions on the right tech infrastructure needed to support all efforts during and following the deal and ensure systems are ready come integration time to avoid business disruption and dips in service levels and performance.
More than 50% of synergy-capture initiatives are related to IT, while 25% of integration efforts typically involve or come from IT. The best practice is to identify IT synergy opportunities early in the M&A lifecycle’s diligence phase and keep them in focus throughout transaction execution.
IT’s role before the deal: IT due diligence and integration planning
1. Narrowing down priorities. IT leaders will have deep and practical knowledge of the existing technology landscape and will ask the right questions that could affect the final deal price and expectations. This includes:
- Examining the target’s state of technical debt, and identifying complexity and the percentage of debt that can be reduced quickly
- Identifying the technology investments and requirements to support new business capabilities and future growth
- Evaluating the existing tech landscape on both sides of the deal to determine how the two companies can fit together, where any possible synergies can be found, and where integration risks might lie
2. Assessing cybersecurity: reviewing the target’s systems and protocols against the acquirer’s can help determine synergy.
- Researching and identifying potential cybersecurity and data privacy risks and liabilities
- Documenting the history of cyber events and exploring the controls in place
- Understanding the level of maturity of the target’s cybersecurity program and compliance
3. Reviewing the overall expenses and savings opportunities of the integration efforts.
4. Evaluating leadership or talent of the technical team being acquired to understand current resource allocation and proficiency.
5. Developing an integrated implementation roadmap that details the prioritized initiatives and highlights the key gaps in IT capabilities to drive the business goals Factors to help decide on these priorities include1:
- Business impact, including regulatory compliance, risk management, and possible rationalization of services or product lines
- Ease of implementation, including technical complexity, resource demands (personnel and technological), and the degree to which certain projects are interdependent with others
- Expected business benefit, including potential cost savings and growth in revenue and market share
6. Assembling an M&A SWAT team. This is a small, cross-functional team of highly skilled, highly trained individuals across IT, including infrastructure, applications, cloud, and network. 10 or fewer members would be ideal. Being part of the M&A SWAT team shouldn’t be a full-time job, but members should reserve enough bandwidth to react quickly if the business comes in with an M&A request and do due diligence work at a moment’s notice.
7. Addressing risk mitigation – technology integration inherently involves risk. IT leaders should look at every decision in terms of the potential costs and pitfalls compared to its benefits. This allows for planning that is based on logical analysis of the facts and reduces the chances that the integration will fail due to unforeseen outcomes.
IT’s role post transaction: seamless IT integration execution
1. Ensuring business and technology resilience: CIOs, CTOs, and CISOs should identify, plan for, and communicate early and frequently to minimize disruption. Technologies and infrastructure need to be properly protected and backed up with enough budget and manpower allocated for business continuity and disaster recovery. Critical third-party providers and relationships should be retained and adequately aligned with the business goals.
2. Minimizing the loss of talent: Is the right talent being deployed in the right position? Preventing attrition is part of change management, and IT leaders need to be active in communicating the strategy, new lines of responsibility, and transition plan to help their teams navigate through this challenging time.
3. Maintaining service levels and performance and enhancing customer experience. Customers will expect the same and maybe more from the merged entity, so it’s good to also have an IT-related communication plan ready to help internal and external customers understand the technical transition.
4. Boosting post-deal synergy capture. This involves the maximization of revenue streams through embedding key products from the target company into the parent company, or vice versa. It also involves recognizing that some elements should be left segregated in order to achieve maximum cost effectiveness or efficiency. Elements that should be considered include people, operational elements, applications and services, and enabling technology.
5. Managing efficiency and accelerating time to market. As a combined entity, a variety of factors will change the time to market for products and services. Leveraging skills and resources from both companies can help expedite development, testing, and production, allowing products to be created faster and less expensively. In some cases, this can also work in the opposite direction, as integration problems can cause inefficiency and other problems.
6. Fostering collaboration and innovation. Bringing together the varied talent and resources of two companies can lead to a dramatic increase in innovation. Companies may have the ability to develop new products faster, combine technologies to create more effective solutions, and benefit from an influx of ideas. However, it is also important to take steps to make sure that innovation is not stifled by incompatible culture changes or processes that aren’t effective in a new environment.
7. Developing an M&A playbook. The goal here is to ensure that the integration process for every M&A event is consistent and repeatable. With a playbook, the team will know what information to gather and which questions to ask. Without it, teams would be reinventing the wheel every time as different people apply their own approaches. Having a repeatable process will allow IT to get the most out of every M&A event and add more value to the company.
Companies with a focus on strategic business-IT alignment, backed by IT-driven business continuity plans and processes have the best chance at successful integration. It’s about doing the right things at the right time and having a clear perspective of what the technology needs are based on the deal objectives. From ensuring business continuity and managing organizational disruptions to synergy capture and security and compliance, it’s apparent that IT needs a seat at the M&A table from Day One.
Have a Question? Just Ask
Whether you're looking for practical advice or just plain curious, our experienced principals are here to help. Check back weekly as we publish the most interesting questions and answers right here.