Deloitte in the News
"Transform While Transact" for Greater M&A Value
Traditionally, companies facing M&A focused first on integration—then, in some cases, on transformation. Today, many are tackling both at once.
By Mushtaque Heera, managing director, and Jeffry Sprengel, senior manager, Deloitte Consulting LLP; Anthony Green, CIO, AO Deloitte & Touche CIS; and Jennifer Van Kleek, manager, Deloitte Consulting LLP
2019 promises to be a banner year for mergers and acquisitions, as companies seek to expand into new markets, acquire technology and talent, right-size their businesses, and diversify their products and services, among other goals. But reaping the full benefits of these transactions is no simple matter. Often burdened with legacy systems unable to keep pace with modern business objectives, companies may face a long and costly journey to attain their post-M&A goals.
Conventional wisdom has instructed CIOs and other business leaders to “transition, then transform” during M&A events, but leading companies are increasingly taking a different approach. Rather than risk failing to achieve the desired benefits because of a lengthy integration process and the limits of existing processes and technologies, they are opting instead to “transform while transacting,” effectively working toward both goals at once.
A Parallel Effort
In the past, companies seeking to grow through M&A developed integration strategies that focused primarily on keeping technology that was a value driver for the deal and consolidating assets for cost synergies. Those that sought additional value and future capabilities through IT infrastructure transformation typically waited until after the initial integration was complete.
Today, many companies are choosing not to wait but, instead, to incorporate the transformation process into their integration strategies. By establishing a vision for the desired post-M&A end state early on—along with a vision for the infrastructure required to support it—they can more quickly align business models and IT architectures with strategy, priming the resulting business for growth. M&A synergies can be realized more rapidly, and one-time integration costs can be reduced.
The benefits can be considerable, but realizing them requires that CIOs and other business leaders give careful thought to business alignment, planning, governance, and disaster recovery. Critical decisions must be made not only about which systems to keep and which to discard when there are overlaps, such as for ERP capabilities, but also whether and how best to implement shared services, what capabilities to keep in-house and which to move to the cloud, how emerging technologies such as blockchain or AI might enable new value opportunities, how to combine and effectively manage previously separate sets of data, and how to address any problems with existing processes or infrastructure.
Limiting the Risks
Combining transformation with integration during M&A entails some distinct risks, but a few leading practices can help CIOs ensure they don’t outweigh the rewards:
Update frequently. When transformation is being conducted in parallel with integration, business processes and technologies are continually evolving. It’s important that integration activities are frequently updated to reflect the most current state of this shifting landscape. That can result in increased complexity and require additional effort for cross-program coordination across all phases of the integration.
‘By establishing a vision for the desired post-M&A end state early on—along with a vision for the infrastructure required to support it—companies can more quickly align business models and IT architectures with strategy, priming the resulting business for growth.’
Plan for longer lead times. Systems undergoing transformation typically require a longer lead time for stabilization once they are deployed, potentially lengthening the time frame for the overall integration effort.
Minimize temporary integrations. Parallel deployments may require temporary integrations to legacy and/or new systems—integrations that will be discarded once go-live occurs. This short-lived work may lead to higher costs and effort for the overall integration effort, so it’s important to keep it to a minimum.
Develop a rollback strategy. Multiple parallel integrations typically necessitate multiple decision checkpoints and a detailed rollback plan before a viable end state can be achieved. This may require increased effort for testing, simulations, and go-live readiness certification, potentially increasing the risk of failure.
Anticipate resource constraints. Business and IT staff engaged in running day-to-day operations may lack the bandwidth to support simultaneous integration and transformation efforts, so it’s possible external resources may be required, potentially leading to higher costs.
Manage data carefully. Parallel transformation and integration will likely require more robust strategies for data migration and master data management to ensure that all data from both organizations remains accounted for and protected in a compliant manner during the entire process.
Commit to scope lockdown. Accommodating scope changes can be particularly challenging in an evolving business and technology landscape, so it’s essential to establish a scope management process that can effectively keep such changes to a minimum.
Embrace change management. Finally, a well-thought-out change and release management process is an important part of ensuring that business and IT teams are kept abreast of ongoing shifts.
In a business world defined by continual disruption, there are many good reasons to take a parallel approach to M&A integration and transformation. With a clearly defined vision and some additional upfront planning and effort, organizations can drive greater value from these transactions sooner than would otherwise be possible, potentially giving them a competitive advantage in the marketplace.