Is your IT M&A-ready?
Mergers and Acquisitions (M&A) are among the most disruptive events for companies and they are becoming increasingly complex in today’s ever-changing business environment. For both acquisitions and divestments, IT has become a critical success factor and a bigger part of the operational and strategic importance of a company’s value. At the same time, IT represents one of the biggest risks in an M&A deal.
To execute or close a transaction successfully buyers and sellers need to overcome a number of IT-related challenges:
Challenge #1: Demystifying IT
IT is often considered as a ‘black box’, with no understanding of what goes on inside it. However, all participants involved in an M&A transaction should clearly understand the scope of IT activities required to plan, execute and close the transaction.
Challenge #2: Involve IT early enough in the transaction process
IT tends to be a topic that is addressed ‘later’ in the process with no involvement in strategic discussions, for example about how to achieve synergies or to identify potential risks and roadblocks to a successful deal. Instead, IT teams are often tasked with operational activities (e.g. setting up network connections) without an understanding of the rationale for the transaction.
Challenge #3: IT preparation is vital for deal success
Separating systems (such as ERP) and data requires more time than divesting business processes, operations or contracts. Similarly, in an acquisition a more in-depth assessment of the migration strategy can help to avoid unexpected costs once the deal is closed. Ensuring that business operations continue uninterrupted and that performance does not drop during an M&A transaction should be a top priority for the CEO and the M&A team, as well as the CIO.
Challenge #4: Unique skills in IT M&A
IT projects associated with an M&A deal are very different from classic IT projects in terms of speed and level of information available, and also in terms of interactions among the parties that are involved. It is important to understand the unique skills required for the job.
IT ought to be addressed at all stages of the transaction
It is important, and generally beneficial from the deal value perspective, that in each of the three phases in the M&A lifecycle, (i) Pre-signing (ii) Deal execution and (iii) Post-closing, specialist IT teams should be engaged to ensure that any issues or risks are addressed early in the deal lifecycle and dealt with appropriately.
In the pre-signing phase, an appropriate understanding of IT assets included within the perimeter of the transaction helps with the assessment of the deal value.
In the deal execution phase, where a deal typically emerges from beneath the cloak of confidentiality, it is essential to involve specialists from all areas of IT and security to ensure that the conditions for closing the deal can be met on time.
In the post-closing phase, it is important that the work of IT specialists should not lose momentum, so that any outstanding activities are completed cost effectively and in line with the business strategy, either from the seller perspective for the retained business or from the buyer perspective to achieve desired strategic or integration objectives.
The strategic rationale behind every deal is unique – but it is increasingly underpinned by IT
Resolving IT issues is a significant challenge to achieving transaction goals, new technology solutions have emerged to execute deals faster, more efficiently, or with a greater value to both the buyer and the seller. Yet, the importance of IT to delivering a successful deal is often discovered too late in the transaction process. At Deloitte, we have seen that transactions achieve greater value and are more successful when they address IT challenges throughout the transaction process, involving the IT function at an early stage.
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