Mergers & Acquisitions: Make Expectations Reality

Trends and directions

Mergers and acquisitions are happening today with such frequency that they are practically routine across many industries including high technology, finance and banking. Acquisitions have even become part of the growth strategies for many companies. But with billions of dollars at stake and thousands of jobs on the line, these deals are anything but business as usual and shouldn't be taken lightly.

Mergers and acquisitions present a minefield of challenges that, more often than not, can derail deals. As companies attempt to make good on deal objectives, there are hundreds, if not thousands, of projects to be completed. At the same time, there are Year 2000 compliance issues, in-market competitive pressures, and customer retention and regulatory-related projects to be dealt with. And, in the midst of all these activities, everyday business must go on.

Although the challenges are formidable and there are no "silver bullet" solutions, you can beat the odds. Having a precise plan focusing on your IT issues and assembling a dedicated mergers and acquisitions team are your best strategic weapons. These elements can greatly optimize your success rate by freeing you to concentrate on synergies and accelerating the transition to an integrated company.

This paper examines the factors driving the growing numbers of mergers and acquisitions and outlines the lifecycle of these deals. We'll explore the challenges businesses face, focusing on the best approaches for success whether your merger or acquisition is a one-time event or part of a planned growth strategy.

Mergers & acquisitions: the driving factors

There's no doubt that today's skyrocketing numbers of mergers and acquisitions are transforming entire industries. The question is, what is fueling this trend? A number of factors are at play, say analysts, and companies often are driven by more than one.

These drivers are expected to keep the mergers and acquisitions trend growing for some time. Some analysts predict that mergers and acquisitions activity will go through the roof with a record 90% of mid-to-large-size companies becoming involved in the next few years. This will be either as an acquirer, a target or part of a divestiture.

The potential pitfalls

Many throw their hats into the mergers and acquisitions ring but few succeed. Why do so many deals fail? The reasons run the gamut from IT issues to cultural differences. Being aware of these and other potential pitfalls is the best way to overcome them.

Overlooking the importance of IT is perhaps the deadliest pitfall you face. This often happens when you become too focused on the driving factors behind your deal. Failing to engage IT management in the planning process is shortsighted and can be disastrous. Without first determining the IT infrastructure that best meets the needs of the new merged company, you will be less effective in making IT systems, applications and networks work together.

For example, when IT managers come late to the process, they scramble to integrate multiple technologies as best they can. Not only does this cause constant change for months longer than necessary, but it also leaves little time to stabilize the merged IT environment — much less implement new technologies to support business goals. The resulting IT problems also can prevent you from fulfilling promises of specific returns to shareholders.

Failing to do high-level assessments is yet another barrier to success. Without such assessments, you're unable to thoroughly understand the people, process and technologies you have in place now. An overall strategy, plan and architecture also are essential. Without them, you have no road map for getting to the merged company and for defining how resources will help meet your business goals.

Strong project management is a key success factor in implementing plans, as is planning for ongoing support to manage the newly created IT infrastructure. Other factors requiring attention are business relationships, service contracts, budget consolidation and standardization.

Organizational and cultural differences also can derail deals. To avoid this pitfall, you should carefully consider in advance any and all changes to organizational structure, roles and responsibilities, behaviors and means of communication. This is key to retaining skills and maintaining morale.

It's very important to be aware of, and prepare for, the potential business disruptions mergers and acquisitions can cause. These include staff malaise causing longer project times and higher costs; missing the window to prepare for Internet-driven competition; and inability to meet Year 2000 compliance deadlines, among others.

Awareness and preparation are key to overcoming the many pitfalls inherent in mergers and acquisitions. To succeed, it's crucial to look carefully at the consequences of the merger on projects and infrastructure first and then choose the appropriate systems to integrate and wisely time the integration.

Creating success: understanding the phases of the mergers and acquisitions lifecycles

The mergers and acquisitions lifecycle can be viewed in four distinct phases. Fully understanding the phases is important to effective planning and smooth execution.

Phase 1: assessment
(due diligence)

Successful deals invariably begin with a complete assessment of all aspects of the merger or acquisition. This provides a high-level snapshot of the state of both acquirer and target company functions at the outset of the deal. Using this "as is" snapshot, you can run analyses to support bid and planning decisions, identify material items and risk areas, and compare company capabilities.

The acquirer should look at a target company's business and IT strategy, applications, infrastructure, processes, people, and the vendors with whom it has license agreements. This information lets potential acquirers begin validating how the merged organization would look if certain assumptions held true.

During this phase it's important to ensure that technology will enable business objectives. If not, the deal can fail, underdeliver or provide some costly surprises. Engaging IT experts during due diligence is a proven success factor. These experts can assess how the technologies of both companies can fit together and map an integration approach to best support business goals.

Using IT experts can help ensure Year 2000 compliance and core applications scalability because they can project and simulate the workload of the future integrated IT infrastructure. This allows them to identify and correct potential problems in areas directly affecting internal and external customers, such as response time and batch processing windows. Also, by putting common platforms and processes in place, IT experts can help you meet challenges involved in managing assets.

Phase 2: solution development
(pre-merger planning)

Although IT plays a critical role, no deal can succeed without the buy-in of the people involved. The mergers and acquisitions process, therefore, must progress from a numbers-based transaction to a people-based transition. This happens in the solution development phase. Here you typically would establish designated program offices including IT, line of business, and human resources. These offices would report into a corporate office that oversees the enterprise wide merger project. Whereas assessment (due diligence) focused on looking at the companies as they are ("as is"), pre-merger planning deals with what the merged company will become, the "to be" company. At this point the focus shifts to creating the "to be" view of the company and making a transmission road map for getting there.

You need to decide what the new integrated company will look like and how the businesses will be merged. This typically begins with selecting the application suites that best support the merger strategy. Good decisions made quickly are better than excellent decisions that take a lot longer, as taking fast action to keep people busy is very important. This is not the time to expect perfection, but rather to strive to achieve a maximum business benefit in the shortest time possible.

During phase two, you should be alert to "organizational drift." Organizational drift begins immediately after a deal is announced, when uncertainty and inertia can take hold. Worry over possible layoffs can lead to defections and lower productivity. At the precise time when your newly combined company most needs to focus on the demands of the marketplace, it is least able to. At this critical juncture, building bridges between cultures can help employees collaborate rather than compete. Good internal communication and proper incentives can help retain your top talent.

This is the time for exchanging information and establishing priorities and evaluation criteria for selecting business products, IT assets and processes. During this phase, you develop and deliver the proposed integration solution. You determine the integration approach, create a high-level transition plan and select your transition team.

Phase 3: integration and consolidation
(merger implementation)

The third phase is the time for executing on the integration projects you've defined. Working quickly to make early wins and achieve visible and sustainable results within the first 100 days will help to build momentum for carrying the deal forward.

Your emphasis should be on obtaining skilled people to execute critical-path merger projects. There are a number of ways to do this, including retraining personnel, partnering with external vendors, and outtasking functions.

Merger implementation activities include establishing a project office, developing detailed project work plans, and identifying market-driven priorities. You also monitor and report on project progress and plan for long-term enhancements. Phase three is the time for deploying your chosen, standard systems configuration to your end-user locations. In this phase, you will also need to determine requirements for upgrading, expanding or implementing new information processing technology, across geographies and, as necessary, in a multivendor, multiplatform environment. System integration plans designed to enhance your existing business processes can give you a competitive edge, help protect investments and provide a basis for future expansion and changes. Good planning enables faster, smoother deployment and improves project management by giving you better control of the entire project.

While deploying your standard system configuration, consider using power protection equipment. System outages result in lost revenue, customer satisfaction issues, damaged files and hardware, lost data and unproductive employee costs. Implementing power protection equipment at the outset can reduce or eliminate catastrophic business disruptions.

Replicable processes and a standard systems configuration with plug-and-play components let you transfer knowledge instead of having to begin anew each time. This provides a template to help support future acquisitions. A template approach may also serve as the basis for internal mergers and acquisitions integration expertise. When a second acquisition is taking place along with the first, standardized processes and system configurations provide a scalable model to support subsequent acquisitions while digesting the first.

Phase three of the mergers and acquisitions process also presents a number of challenges surrounding the physical environments supporting your IT equipment. Supporting the changing environment may entail expansion, remodeling, or even building new facilities for handling information processing requirements. Careful planning, design, construction, equipment installation and testing can reduce potential risks.

Engaging professional site services experts can help you plan a total solution for addressing your physical infrastructure needs and help you create the best physical environment for the merged company. For example, when consolidating your data or communications centers, site services professionals can help you determine the best locations by evaluating environmental factors such as flooding and earthquake vulnerability, or other disruptions such as airports and highways, that can make communication center locations untenable. These professionals can also plan your space to ensure compliance with safety and environmental regulations, help determine building material needs and help meet security needs. Such services should coordinate with and complement your in-house skills.

Although the focus in this phase is on critical-path projects, you should have a governance process to assess the impact of the project and its business benefit versus cost. Regulatory issues and high-impact projects typically take precedence in this governance process.

Phase 4: continuous improvement
(post-merger projects)

In the final phase of the mergers and acquisitions lifecycle you execute non-critical-path projects that put the merged company on a continuous improvement track. For example, you may have a project that requires reengineering and may result in a 30% cost savings.

Phase four also is the time for establishing project work plans and teams, reporting on progress and results, delivering on projects, and delivering a cost/benefit analysis. The fourth phase is when you validate the business case for the merger.

Conclusion

Clearly, there is much at stake in any merger or acquisition. The best way to be successful is to be prepared. This means starting early and putting first things first — namely focusing on IT and on identifying integration challenges early. This lets you make informed decisions on managing problems or avoiding them altogether.

There are literally thousands of challenges to be met as you negotiate your way through a merger or acquisition. For companies new to the process, engaging experienced mergers and acquisitions service providers can be beneficial. It's important to select service providers who deliver "end-to-end" support and remain available even after the transaction closes.

Whether your merger or acquisition is a new experience or part of an ongoing growth strategy, the success factors remain the same. Fully understanding the challenges going in, focusing on IT issues, forming a dedicated team, establishing a project office to track progress, executing with speed and ensuring continuous improvement after integration are key to emerging from the process as a thriving new business entity.

Mergers & Acquisitions; Make Expectations Reality online white Paper