Mergers and acquisitions aren’t just all about dotting the i’s and crossing the t’s when it comes to your legal documents and finances. The success of the M&A depends on how quickly and efficiently you can integrate IT systems, data and processing workflow.
According to a Harvard Business Review report, between 70 and 90% of M&A projects fail. One of the reasons is the neglect of a proper IT integration strategy for mergers and acquisitions—an essential step for any business to ensure a flawless transition. Planning for IT integration in advance minimizes the risks of downtime, interruption to business processes, ensures data integrity throughout the process, and, in general, makes for a smoother transformation. Unfortunately, many enterprises do not adequately prepare.
Pre-M&A due diligence and preparation steps
Before you start your M&A, you’ll need to follow a few steps to start off on the right track. Here are some of the stages you should adhere to get your merger and acquisition started right:
Collect all the relevant information
Time to look under the technology hood. This may include collecting the information about applications, infrastructure, vendors, and IT operations. Delving into a technical due diligence process is crucial both for the seller – to identify the issues that might affect the deal – and for the buyer – to make sure that none of the critical areas have been overlooked.
Analyze the situation
Where do you stand in terms of IT? At this stage, you should take note of the current resources and systems that you have. And what needs to happen to make this integration successful? Here, you don’t need to have a full integration plan, it’s enough to know the basic steps to take next. Consider if you need to make any changes to your systems to get them ready. Now, think about if you will need any additional resources to make your M&A transition successful. Here you should consider whether you have sufficient internal resources or you need to onboard an outsourcing provider to help you.
By being transparent about the current risks, situation, and expected challenges, you allow your team and the one involved in your M&A to address them more effectively. Hidden or undeclared information can jeopardize an M&A before it gets off the ground.
Weigh up the risks
Risks are a normal part of any business process, by noting them in advance, you will best set yourself up for resolving challenges before they happen. Open and transparent risk assessment is one of the key factors that make for successful M&A integrated solutions. However, often businesses fail to address these risks adequately and unexpected issues might occur. This can be anything from incompatible software to conflicts between PC and Mac, tech debt, or even human factors. One of the main benefits of engaging a special M&A IT team for integration is more accurate risk prediction.
Take account of your assets
From your human resources to finances to expertise, knowing your assets will help you map out your integration strategy and identify any areas of weakness that you may need external help for. For example, during the integration process, you may notice that a system, crucial to the integration, was skipped at the inventory stage. This could cause the entire process to slow down or even change the trajectory of the integration. Taking account of assets in advance and doing a full inventory, puts you in the best position to get started while minimizing the risk.
Allocate roles and responsibilities
While you may have outlined these at the previous stage, it’s essential that the roles and responsibilities within your M&A are well outlined and defined. Any M&A is a time of change, and that’s true for your team too. Their roles may be changing, at least temporarily, or they may need to cooperate with outside providers. In any case, you’re likely to need these specialists to your team:
- Integration Manager;
- Integration Architect;
- Integration Engineers (+ SysAdmins);
- Integration Analyst;
- Integration QAs.
They will ensure the work is completed to the highest standards when it comes to IT integration. Note, that by managing the process from the very beginning, you set your team up for success.
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Create a strategy
Now that you know the risks and your assets, it’s time to start forming a strategy on paper. This should be a well-mapped-out and achievable plan to integrate your IT assets in the most effective way, and include all the points above. Here you will need to make some decisions. For example, you may choose to:
- Keep your IT environments separate
- Adopt the other company’s IT structure
- Create a whole new combination of both
There is no ideal answer here. Your solution will depend on your individual business needs and your assets. Note: Don’t forget to ensure you include who or what team is responsible for what, during an M&A this is essential to ensure that everyone knows their role.
As they say, the proof is in the pudding. Before you kick your IT integration strategy into action, it’s vital you validate it first, use well-established business tools and metrics, such as risk assessments, business planning, stakeholder analyses, and TCO analysis, to ensure your plan will work.
Planning the budget
According to Deloitte IT M&A Study, approximately half of the transaction implementation budget is associated with IT activities. Thus, getting IT costs right becomes a crucial component of the overall deal, whereas failing to estimate them might result in significant IT integration delays, cost overruns, and, ultimately, post-deal disputes.
Successful IT budget planning starts at the target screening phase. Although at this point, it relies partly on notably limited information, partly, as a rule of thumb, the initial forecast still needs to be done to support early-stage deal evaluation and negotiation efforts.
The target screening integration cost estimates are to be refined during the due diligence phase. The accuracy of the cost analysis here is in direct proportion to how meticulously the due diligence has been performed. A complete and thorough analysis of the entire IT ecosystem, including applications, infrastructure, etc., is required so that all the possible cost-related issues will be identified and addressed early on. It may turn out that you’ll have to replace legacy systems or invest in additional infrastructure resources, like servers, network equipment, etc. By taking care of all that in advance and focusing on longer-term needs rather than ‘quick wins,’ you have a great chance to avoid unexpected costs down the line.
What makes successful integration when acquiring tech start-ups?
Now that you know the essentials of what to prepare for when it comes to an M&A IT integration let’s talk specifics. Today, one of the most common requests we receive in terms of mergers and acquisitions is when it comes to companies seeking to purchase tech start-ups. Often this happens because a company wants to acquire some cutting-edge technology or innovation, which should be fully integrated into their systems to become a prized asset to their business.
These types of M&As come with both technological and cultural nuances that enterprises need to be aware of. Here are our top tips for start-up M&As:
- Consider the tech implications. When companies acquire tech start-ups, it can be difficult to assess the resources needed due to the technology’s proprietary nature. In this case, it’s vital to get the other team on-board at the start to see how they believe their technology can be best integrated, how long it will take, or if it even can be fully integrated or will remain a standalone feature.
- Be prepared to allow autonomy to your M&A team. Tech start-ups, by nature, are agile environments and subject to constant change—this is what makes them so good at what they do. Often, they are used to autonomy and making decisions. Even during an M&A, it can be challenging to give up these characteristics, and in fact, can impact the work of the team post-M&A. By allowing a certain level of defined autonomy in decision-making, you set yourself up for a better working relationship long-term.
- Develop goals and strategies for everyone. An M&A shouldn’t be two teams working in parallel. It should be two teams working together. Creating shared goals, strategies, and processes for achieving these means that everyone feels involved and can use their expertise effectively to advance your business without engaging in in-fighting.
- Expect complications. Nothing worth having comes without hard work, and this is particularly true for start-up M&As. Proprietary technology is by nature unique, and the typical IT processes won’t always work. Use the knowledge and expertise. You must ensure a tailored approach is taken for ultimate M&A success.
Your M&A IT integration checklist
To help you keep your M&A as seamless as possible and ensure your IT strategy will work for you, we’ve created this easy-to-follow checklist for any business entering into an M&A.
Getting started with your M&A the right way
Mergers and acquisitions can be a stressful time for any business, no matter how many times you’ve done this before, or even if it’s the first time. Each M&A requires a lot of work and coordination for various departments to get it done in a way that works for you. When it comes to your IT assets and your newly acquired ones, it’s essential that you ensure that all is in order before the merger begins. Getting the right specialists involved at the get-go if you don’t have them on your team, ensures that your M&A will be completed right. Avoid errors before they happen and tick those boxes when it comes to your M&A IT integration.
Learn more about the role of BI in M&A deals