Can companies afford to lose 20% of the value in an M&A deal?
Surely not. But that’s essentially what business leaders are doing every time they leave IT out of the initial planning activities. Exclusive attention is given to securing the business and extracting value; too little is spared to figure out how the two companies should interoperate from a technology, and IT, standpoint. It’s no surprise then that IT’s role in realizing and enhancing value in an M&A is overlooked.
A 2011 Ernst & Young survey of 220 business executives echoes this problem. Only 50% of the respondents said they involve IT in the transaction process, compared to 80% for finance. 47% agreed that value erosion could have been prevented with a more detailed IT due diligence. And a little over a quarter reported that IT issues often block post-transaction objectives.
This oversight can have significant consequences for companies. Transaction value realization gets dragged out, synergy opportunities lost, and shareholder value destroyed. No surprise seeing that technology underpins almost every function in a company today and that IT can often be the biggest cost driver in an M&A. How will payroll systems be integrated? How will financial systems be combined? How will HR systems interplay? How long will it take to merge these IT systems? As the business races towards day one, these questions threaten to diminish or, at worst, derail the deal.
IT’s role in M&As is as much about minimizing risk as it is about maximizing value. And involving IT right from the start is key to realizing the full benefits and value potential of an M&A event.
But how can you earn a seat at the table on day one? And how can IT prove its value and play a bigger role in M&As? It all boils down to mastering the four stages of the integration process:
- M&A integration planning—does IT have a repeatable, proven plan to maximize value?
- Integration—does IT have sufficient resources to handle an M&A project?
- Communication—how should IT dependencies be communicated to non-IT executives?
- Optimization—what does it take to improve operations in the long term?
By following these four key steps, you would be better prepared to evaluate the readiness of both companies, spot value creation opportunities, and elevate any M&A event.
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