IT Integration During Mergers and Acquisitions: How to Prepare and Succeed

IT is responsible for the continuity of businesses everywhere, but it is often an afterthought during mergers and acquisitions (M&A). While the success of M&A does not rely solely on IT, early integration can improve the odds of success. However, even when done later, merging your technology can bring your company many benefits. How? Read on to learn the four steps for successful IT integration during and after the M&A process.
8 min read
5/02/21
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By Maureen Fitzpatrick
Vice President of Business Development
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IT Integration During Mergers and Acquisitions: How to Prepare and Succeed

M&As provide an opportunity for companies to quickly improve their position in the market. If an M&A is done the right way, companies can benefit from increased revenues and cost reductions (the latter, for example, is very common for asset management companies, 20% of which will consolidate by 2025). However, many companies planning an M&A are missing a fundamental piece of the puzzle: IT integration. They just leave the existing structure as it is. As a result, several years into the merger, the department becomes cumbersome, overcrowded, and full of vestiges of the previous company.

At the same time, companies that engage IT partners early in the due diligence process can expect to increase the probability of their M&A succeeding.

Read this article to learn how to integrate IT into the M&A process.

Step 1. Due Diligence for M&A IT Integration 

IT due diligence is an essential stage that should be completed before an M&A deal goes ahead. Even if you already accomplished the M&A process but left your IT infrastructure as it is, there is still a chance to restructure your IT department. IT due diligence includes a thorough investigation and verification of all systems, their compatibility and their ability to deliver a successful M&A.

Why This Step Is Important for the IT M&A

When a firm acquires another company, a thorough IT infrastructure assessment allows the acquirer to mitigate risks, highlight opportunities, and weed out any signs that the deal could be a poor option.

For example, outdated systems, irrelevant applications, poorly implemented processes, or security vulnerabilities can all be identified during the due diligence process. Other elements that may come up include a lack of qualified engineers, potential integration issues between the two companies’ software, or poor scalability of the existing tools. These are very important questions that should be addressed before the IT M&A process begins because it provides insights into the expenditures required to successfully merge the two companies.

IT analysis involves reviewing technology management, including applications, costs, strategies, and key security measures. During this stage, companies often options for how to take full competitive advantage of technologies, like advanced analytics, blockchain, robotic process automation, and cloud computing. These solutions can help reduce costs, enhance the client experience and improve business growth. But not all target businesses will have the infrastructure in place to align with those goals.

Case Study: Due Diligence as a Pre-M&A Stage

One of the largest U.S. business travel providers investigated options for how to reduce its support team headcount and onboarding time. The company was looking for a solution that could combine the functionality of multiple tools and an AI-driven bot to reduce the support reply time.

One of the options was to acquire a startup that was designing a similar tool. The travel provider turned to DataArt to estimate the competitiveness of this option compared to other options on the market. The IT M&A due diligence process included an analysis of purchase compatibility with an existing solution, the cost of its support, and scalability.

If you are looking for a similar service, you can also ask for the basis inventory to understand whether all the system elements have the source code, whether they are licensed and meet the compliance requirements.

Another due diligence component is a process audit that allows a company to understand how the acquiree’s development process is organized. This includes the company’s development approach (Scrum, Kanban, or waterfall), whether the development process is scalable, and the level of detail of the company’s documentation.

Step 2. Combine IT Capabilities 

When two companies merge, they must decide which systems are redundant and which system will be the default moving forward. Initiating a discovery stage requires the target company's IT team to communicate and share knowledge.

Why This Step Is Important for IT M&A

If IT leaders can come together to identify the common, unique, and new solutions in the target company, they can map a joint IT infrastructure plan that makes the most of the existing technology while bridging the gap with new solutions. Mutual communication is a critical step in streamlining organization during the IT integration process.

This stage may be organized in two different ways. A top-down approach supposes the creation of a new entity with the common functionality required by the target company. In this approach, a company creates new infrastructure and then transfers data from the current solution. The downside of this approach is that a new solution may not cover all existing functionalities or process all of the required data, which could result in system paralysis.

A bottom-up approach lets companies craft separate blocks to meet the needs of individual departments, instead of the company as a whole. The major downside of this path, however, is that the new system may lack the scalability needed to reach all of the company’s departments.

Case Study: The Role of Combined Capabilities in Technology Mergers and Acquisitions

Many asset management firms develop by acquiring smaller asset management companies. Often, each recently acquired entity retains the IT infrastructure it used before the acquisition. As a result, the new firm must support several tools, each performing the same function. However, when c-suit management requires summary results of all the departments, the fragmented IT solutions do not allow to deliver results automatically. In this case, asset management firms often turn to DataArt to merge their IT solutions and cut their support expenditures.

Step 3. Pre-Plan Data Integration  

Data is an asset manager's superpower and the key to maintaining client trust. While data falls under IT integration, it is an important entity that must be considered separately.

Why This Step Is Important for IT M&A

Planning the integration of company data correctly has many potential benefits relating to cost reduction, security, accessibility and compliance.

Most asset management companies already use data to predict and compare results from different investment strategies. For instance, the Institutional Brokers Estimate System uses a form of machine learning to give analysts aggregated data sourced from 40,000+ companies. When planning a technology merger and acquisition, your company should create a data model that is scalable and can serve all the company needs. Otherwise, there is a high risk that your solution will not be able to meet all your technological requirements.

Case Study: How to Integrate Data During IT M&A

Data integration during IT mergers and acquisitions is a highly detailed process. Modern data platforms need to be reliable, scalable, and meet compliance requirements. Sometimes, to assure data platforms work correctly, companies can even create new tools responsible for their operation. At Black Rock, an American multinational investment management corporation, data scientists use an AI and ML-driven software called Aladdin for operational processes, data quality control, data cleansing, and reviewing over one million daily risk reports.

Step 4. Find Synergies with an Integration Roadmap and Timeline During IT M&A 

The technology merger is an essential stage of an M&A as it allows companies to cut costs and find synergies. The IT M&A plan includes milestones, key performance indicators (KPI), highlights risks, issues, and dependencies, so that IT teams have clear objectives to achieve success in an agreed timeframe.

Why This Step Is Important for IT M&A

More than 70% of M&A deals fail, but three elements can have a huge impact on the process success. The first is the actions that are taken in the first one hundred days of M&A; the second is having a solid integration plan; the third is identifying all potential synergies.

When it comes to larger companies, the full-fledged technology merger and acquisition may last for a few years. In this case, firms consider the total timeline deviations of half a year adequate. The plan detailing depends on the period for which this plan is created. Here, the annual IT M&A plan is detailed enough; the quarterly-half a year plan is very detailed, without considerable deviations.

The more detailed M&A IT integration plan you have, the more exact assessment of ROI you can make, and the faster you can detect and prevent deviations from your plan.

Case Study: How to Estimate the Effectiveness of IT M&A

Since technology mergers are a massive and resource-intensive process, many companies turn to DataArt to estimate the ROI of the outcome. We provide metrics on IT cost-cutting, compliance, hourly expenses for system support, and personnel onboarding times.

Conclusion

An underestimation of IT mergers and acquisitions caused 35% of M&As to fail in 2016. But if yours was one of the lucky ones, you can still make changes.

If your company has already accomplished the M&A process but you find your IT infrastructure cumbersome, it is the right time to estimate the efficiency of your current framework.

If you are looking for a partner for IT integration, turn to DataArt – we know how to realize your goals and make your IT M&A a success.

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