The Critical Role Of IT Consolidation In M&A Success

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Deal-making rebounded in the second half of 2020 after a slowdown during the pandemic’s peak. According to Refinitiv (via Law.com), global M&A deals jumped 88% in the second half of the year for a total of $2.3 trillion in value.

With strong capital markets and the end of the pandemic within reach, the global economy is poised for an acceleration of mergers and acquisitions. The pandemic has tested most organizations’ abilities to perform under high stress. Some organizations will thrive and grow due to market acceleration or well-disciplined financial controls. Others will shutter because of customer loss or mismanaged expenses. This creates opportunities for the acquisition of distressed organizations, as well as stronger companies that are simply ready for change.

The momentum we saw in late 2020 is clearly carrying into 2021. Shrewd executives pursuing M&A deals have a real opportunity to secure maximum ROI early in the M&A process, but too often there is one critical step that is largely overlooked: merging IT infrastructure.

Why Merging IT Is Critical To M&A Success

IT integration is often an afterthought post-merger. This oversight can lead to increased IT overhead costs and decreased productivity. It’s not uncommon for companies to take longer to realize ROI due to failed or extended integration of operations and technologies. Disjointed IT integration can impede workflow and processes between the two M&A entities, as well as put business goals at risk. But it doesn’t have to be that way.

Technology is integral to most business operations, so it’s essential that business leaders develop a plan for successful IT integration. Properly assessing, combining or consolidating systems can eliminate redundancies, centralize and strengthen security practices, prevent data loss, and, ultimately, save valuable time and money. That’s not to mention the positive impact of a well-planned IT integration on the employees themselves, which can lead to improved staff retention during a crucial time in a company’s lifecycle.

While consolidating IT, it’s imperative to know that speed doesn’t equate success. There are cases when the process must be managed well or else it could create customer or legal issues, such as the merging of systems that would take either organization out of compliance with legal certifications like SOC, ISO, or others.

Common Pitfalls When Consolidating IT

Involving IT leadership in the M&A process is critical to success. Any missteps in merging IT infrastructure can cause unnecessary frustration and add a layer of complication to an already complex process. A lack of planning, testing, communication and expertise can lead to disastrous results.

When companies do not include the IT department in the early planning stages, this can hinder awareness of critical IT considerations for the project. It can negatively impact the realization of IT-related synergy and result in added risk regarding integrating technologies as well as unnecessary costs. Including IT in the conversation early allows department leaders to assess consolidation costs, which are part of the overall acquisition expenses.

Technology systems can vary greatly between two companies in terms of status and age, so it’s important to assess and understand the systems being merged. If a technology deficit exists and isn’t thoroughly assessed, it will result in costly resource allocation and hours devoted to modernizing technologies and unifying the IT infrastructure.

Four Additional Steps for Maximizing Value

To ensure streamlined IT resources and maximum ROI, executives must do four things:

First, business leaders must make disciplined and strategic decisions about the systems to keep and consolidate and bring the right people to the table when analyzing these. They should evaluate supply chains, ERP, payroll systems, cloud solutions and more. These decisions, if done correctly, will save substantive costs. When well-planned, cloud migrations save an average of 15% on overall IT spending.

As executives consider the integration of data and critical communication applications, such as email and calendars, they should also consider leveraging technologies that can automate and streamline the migration process, making it safe, secure and easy. This frees up time for the IT staff to focus on the myriad other challenges that arise during any major change in the business structure.

Second, the acquiring company should use this opportunity to assess what data must be kept. Creating a data governance plan is an effective way for both companies to pare down the volumes of old electronic data that is no longer useful or necessary to save. Companies accumulate more and more data every year, and very little electronic data is purged due to a growing availability of storage space. Much of this data can be irrelevant. Keeping it can interfere with productivity, such as the ability to locate files, or worse — create a liability during an audit or legal inspection. Creating retention policies for different types of data can help with managing a surplus.

Third, leverage synchronization. Synchronization can provide short- and long-term coexistence between systems. This will allow for a longer migration period while still having systems maintain a holistic view of information across both organizations.

Lastly, once the merger is complete, IT teams must govern and monitor the new solutions being implemented. Third-party tools and automated solutions can improve efficiencies through usage assessments for software, cost analyses and identification of ways to improve adoption and usage. These automated tools can also enforce system policies, which will result in less deviation for access control, licensing, identity profiles and features. If the acquiring company has done the first three steps, the final consolidation and migration of data should be seamless and straightforward.

In our post-pandemic world, companies rely on IT infrastructure in nearly every aspect of their operations, making the role of technology in mergers and acquisitions more critical than ever. Business leaders who factor IT consolidation into the early planning of M&A deals will position themselves to achieve business gains sooner and find success in the coming year and beyond.

Reposted from Forbes