As organisations seek to reignite post-recession growth, mergers and acquisitions (M&A) is once again at the forefront of the corporate agenda. Global M&A activity is up 18 per cent from the first quarter of 2009, according to Thomson Reuters.
Well-positioned organisations that have stockpiled cash during the downturn are looking to execute deals before their competitors start catching up.
Yet, M&A activity is fraught with risk even under the best of economic conditions. Research has shown that almost 70 per cent of M&A fail to create expected shareholder value – with integration being the dominant cause of value loss. Even among companies with a successful M&A track record, three times as many cite integration as the most serious risk compared to problems with deal strategy and deal valuation.
As levels of acquisition activity increase, IT leaders must understand the M&A process and become actively involved as early as possible to ensure proper and timely integration of IT systems and services. Early involvement allows IT to inform senior executives of the IT implications of acquisition strategies, and to get a head start building IT capabilities to plan and execute successful integrations.
Three priorities for IT in 2010
Below, we highlight three ways in which IT can help to increase the chances of M&A deal success. The priorities are based on the research of the CIO Executive Board and its sister program, the Corporate Strategy Board – both programs of the Corporate Executive Board – which has spent more than a decade working with IT leaders and corporate strategists at the best companies in the world.
- Establish a dedicated or on-call M&A team in IT.
Organisations that attempt to execute poorly devised or delayed integration plans invariably find themselves struggling to meet a deal’s intended goals. Ensure that a small pre-identified IT M&A team is on-call to avoid delays in integration that can arise if IT has to scramble to find appropriate team members or finds itself with an integration team that lacks the necessary experience. This team can evolve over the course of the acquisition assessment, integration planning, and integration execution phases to include other IT resources as needed.
- Focus IT due diligence efforts on assessing deal risks and benefits.
Like other aspects of M&A, market uncertainty further clouds tricky valuation decisions. Organisations are finding M&A benefits capture undermined by inaccurate assessments of deal risks and benefits. To help rectify this, seek IT participation in up-front identification of strategic and operational risks related to the acquisition. For example, one consumer goods company involves an IT specialist team in “risk brainstorming workshops” to surface and catalogue all possible sources of risk that are likely to undermine deal value. Risks are then weighted in terms of impact on profitability and likelihood of occurrence, enabling the company to establish mitigation priorities.
- Maintain IT asset and service inventories.
Post-deal value capture may be hindered by IT integration efforts that incorrectly align with business strategy – either under- or over-integrating units. To pre-empt this risk, maintain detailed IT asset and service inventories that include technical data and business context (e.g., information about which applications support major business process areas, teams or individuals responsible for a particular asset or service, whether applications were developed in house, etc.). These inventories can be used to identify and protect key talent early in the M&A process, determine vendor consolidation opportunities, and allow planning for future system replacement based on business requirements.
The M&A payoff
M&A can become a key growth engine for organisations that are able to identify high-potential targets, prioritize the best deals, and integrate these acquisitions for maximum value. IT can help deliver a significant portion of anticipated M&A integration benefits by building IT capabilities to accurately assess deal risks and benefits, plan for integration, and execute integration effectively.
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