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Successful Mergers and Acquisitions

IT’s role in a smooth integration

As the economy recovers, some businesses are moving to take advantage of attractively priced companies looking to be acquired, and mergers and acquisitions (M&As) are moving back onto the agenda. If they’re not performed well, M&A integrations are challenging and carry significant risks. IT now often plays a significant role in helping both the acquiring and selling parties achieve their M&A integration objectives.

IT can be viewed as a bellwether of an organization, and if it’s well managed in both the acquiring and acquired companies—functioning effectively by delivering the information the company needs—a smooth M&A integration is possible. If IT isn’t providing the information the organization needs before the M&A, integration will likely be difficult and costly, and the integration’s success is endangered.

Quality is Key

IT integration can play a significant role in an M&A, and that role is often determined by the quality of information and services IT provides. Information quality and how well data is used in managing and running the companies are critical for the resulting organization to function smoothly as one company.

“If the companies are going to be tightly integrated, it’s critical to closely match customer and product information and other key information between the two IT departments,” says Jim Wener, technology committee and technology advisor for the Alliance of Mergers & Acquisition Advisors, and president of Business Systems Consulting. “Having accurate data and ensuring you’re capturing the same level of detail needed by the merged company is essential to a successful M&A integration.”

Due Diligence

A substantial amount of the upfront assessment needed for effective integration planning should be performed as part of the initial due diligence work before the merger, helping identify what informational questions must be answered.

Several issues must be addressed in this stage. One key issue is whether data is of sufficient quality to allow integration of data systems. It’s important to evaluate the underlying data and operating data-governance processes to ensure accurate data processing, because data quality can well affect the company’s purchase price.

The buyer may want to offer a lower purchase price if the IT system doesn’t work well and integrating the information to ensure a smooth operation will take considerable resources and money.

A clear indication of potential problems in integrating IT systems is the existence of “desk drawer” systems, which can be any data-management tool used by the operations people that works outside of the company’s main IT system.

Examples include subledgers or spreadsheets to track sales that operate independently of IT’s main systems. These subledgers may be used to make critical operating and management decisions even though the information is supposed to be housed in the company’s main system.

“One of the biggest mistakes from an IT perspective in an M&A is not asking the right questions.” — Jim Wener, president, Business Systems Consulting

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