IT-Enabled Mergers and Acquisitions
by Aaron Lazenby, May 2010
McKinsey & Company released research in April 2010 about how mergers and acquisitions (M&A) leaders are using technology to streamline the acquisition and integration processes. Here, McKinsey partners Hugo Sarrazin and Andrew West discuss some of these findings.
Why do so many mergers, carefully thought out in terms of strategy, markets, and organization, stumble on the integration of technology and operations? One reason is that executives from IT and operations are often absent from the due diligence process, where they could offer invaluable input on the costs and practical realities of integration.
Consider executives evaluating the savings from merged supply chains. They cannot hope to be successful without a deep understanding of what’s required to bring the two companies’ information systems together. Yet our research finds that such key information is often overlooked. In our work on postmerger management, we have found that 40 to 60 percent of the initiatives intended to capture synergies have strong IT dependencies—and most are not fully understood during due diligence or in the early stages of postmerger management planning.
But this is starting to change. Smart companies are giving IT a seat at the due diligence table and, in some cases, making the CIO a strategic partner in identifying acquisition opportunities. In these organizations, M&A depends increasingly on a flexible IT architecture that goes beyond simplifying integration and raises the value proposition of the acquisition. The IT functions in these companies develop standard processes, tools, and data so they will be better equipped to absorb an acquisition. More importantly, they have already developed the discipline to make tough decisions about integration, including when to leave legacy systems behind and migrate to a standardized system.
When IT managers are closely involved in M&A, they can spot potential roadblocks to integration in the acquisition target (for example, platform incompatibilities that will require a workaround) or discover potential liabilities (such as massive underinvestment in technology, resulting in an IT function dependent on outdated architecture and systems). Once the acquiring company has a better picture of the state of technology in the target, IT can help identify opportunities for synergy and estimate the costs associated with realizing them. By working with the functional subteams, IT can help business leaders understand the real impact of merging the organizations.
The key figure in this scenario is a proactive IT leader who works closely with the rest of the senior executive team to prioritize technology issues—and to ensure their buy-in on integration and migration plans. The CIO must commit to timelines and budgets to help make the case for value in an acquisition—a move involving significant risk, given IT executive churn rates. The IT leader must also make the case that, as in other functions, IT integration is about more than systems; it’s about culture and governance.
This leadership is crucial if companies are to avoid the distraction of turf wars among merging teams and ensure quick alignment in the first 100 days after deal close. When an IT team has its shop in order, it becomes easier to insist on migration to their system. CEOs who would embark on an M&A strategy before getting their own IT shop in order add significant risk to their prospects for success.
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