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Über dieses Buch

A lack of adequate and timely IT involvement in the merger and acquisition process costs companies millions of pounds every year. This book addresses and answers topical questions such as: What should your company be doing about IT when considering a merger or acquisition? How can companies avoid M&A failure and further IT risks in an M&A project?



Setting the Scenes


1. Introduction

This book is about reducing the risks involved in M&As through the role played by IT in the merger process. Its aim is to increase awareness of the key role that IT could play in successful M&As and the opportunities that IT can create. IT can be both a cost and a source of synergy and value creation and can appear on either side of the M&A balance sheet. IT is easily forgotten as those involved in M&As battle to get the financial side right. Yet it may be at the very heart of the pounds, euros or dollars that a transaction will cost and generate. Virtually every organisation uses IT in some form or other and for many IT is critical to the business model: reducing the risks associated with IT, therefore, can make a significant contribution to reducing the overall risks surrounding M&As.
Frank Vielba, Carol Vielba

2. The M&A Landscape

Before focusing on the role of IT and the CIO in M&As, it is helpful to consider the nature and scale of current M&A activities. These transactions are now commonplace but their impact on organisations and the people, both managing and working within them, can be dramatic. M&As are not the sole province of the Chief Executive Officer (CEO) and the Director of Finance. The managers of the other functional areas of the business also need to understand the implications of M&As. Although many CIOs have a technical background, their role also requires them to be a senior manager and a contributor to corporate strategy and decision-making.
Frank Vielba, Carol Vielba

Implementation Issues


3. The Business, Technology and Management Model

There is a general consensus among business leaders, analysts and managers that M&As frequently do not create as much value as originally intended. Some of this shortfall can be blamed on over-optimism by the initiators of an M&A in an attempt to promote the worth of the deal. An examination of the deal may demonstrate that it was based on faulty logic and the intended value creation based on hope rather than reality. However, a considerable part of the shortfall often arises from poor execution of the details of the deal, in particular the post-merger integration of the organisations involved.
Frank Vielba, Carol Vielba

4. The Business Context

The business context for the CIO is crucial because it is rarely the IT function that is taking the lead and dictating the pace of the M&A. However significant the impact on IT, and however central IT is to the organisation, M&A is about corporate growth and corporate decision-making. Issues such as a clear M&A strategy within the company, targeting the right company, and selecting the right mergers and acquisition team have all been identified as success factors both for the M&A as a whole and also for IT. Absence of these factors adds to the risk that the M&A will fail to deliver the value set for the transaction. Although these are success factors at the level of the firm or organisation, they impact directly the CIO’s ability to deliver the objectives of the integration. They are therefore contextual factors that the CIO must be aware of and understand as they will have implications for IT and will affect the CIO’s freedom of operation during the M&A process.
Frank Vielba, Carol Vielba

5. Technical Issues

Incompatible technology is one the most common factors that increases the IT risks in an M&A project because it increases the integration costs. Reducing this risk may involve selecting common single-technology architecture and associated technical solutions. One of the advantages of the single-technology approach will be increased economies of scale. The main disadvantages will be the time required to gain support, resistance to change and delayed implementation. Untested technology is another common IT pitfall in an M&A project and companies that take this approach increase their IT risks. It should be minimised as much as possible. Data migration, system interfaces and scalability are typically underestimated when it comes to meeting agreed timescales and costs.
Frank Vielba, Carol Vielba

6. Management Issues

The CIO has a dual management responsibility in an M&A: on the one hand he or she should be part of the senior management team responsible for decisions about the transaction as a whole; on the other hand the CIO has to manage directly the integration of the IT function across the organisations involved in the deal. A survey of senior managers reported by Roythorn (1997) noted that the key lessons respondents learned from their involvement in M&As revolved around planning. Planning should have been done earlier and more efficiently and should include thorough due diligence. The other point emphasised was to recognise what you do not know or cannot do and to seek help promptly.
Frank Vielba, Carol Vielba

Best Practice


7. The Phase Model

One of the strongest themes to emerge from the cases is the importance for IT of early involvement in the M&A process. Early involvement reduces the likelihood that IT will be expected to deliver unrealistic targets and increases the chances of valuable IT synergies being recognised when a deal is made. It also ensures that those responsible for IT are informed and prepared for the task that faces them once the M&A has been agreed. This applies as much to the acquired as the acquirer. The question then needs to be answered, how early is early in terms of useful involvement by IT in the M&A process?
Frank Vielba, Carol Vielba

8. Due Diligence

Before a company decides to acquire or merge with another a process of ‘due diligence’ is undertaken. The term due diligence applies to the investigation and evaluation performed by the acquiring company into the company to be acquired. In this process, often carried out by M&A’s consultancy firms on behalf of the buyer, a general examination of the target company’s assets, liabilities and capabilities is undertaken. The objectives of the due diligence typically are:
  • To identify points that have an impact on the value of the target company and therefore affect price and bid negotiations.
  • To reduce the risk involved in a deal, for example, by obtaining warranties against legal claims.
  • To understand the potential synergies between the companies and gauge whether or not these are achievable.
From the IT perspective, the focus of the due diligence phase should be to gain an understanding as quickly as possible about the state of the target company IT systems infrastructure. The activities involved will be to do with understanding the integration difficulties and costs. The key deliverable from this phase is the due diligence report that represents a high level assessment of the challenges and opportunities ahead.
Frank Vielba, Carol Vielba

9. Detailed Assessment

The structured approach presented in Chapter 8 started with the due diligence of IT before the merger is announced. This is a snapshot of the new company’s IT organization, processes and systems. Armed with this information both IT and business management are in position to make rational forecasts and apply judgment about the ‘intrinsic’ value of the new company’s IT systems.
Frank Vielba, Carol Vielba

10. Integration

Arguably integration is the most important phase of the whole M&A process. This phase is action-oriented and requires a strong delivery focus. From an IT viewpoint the CIO needs to perform a balancing act between managing the transition to the new operating environment and keeping current systems going until such time as the new IT infrastructure, systems and organisation can take over. This balance, between development and operational activity, creates a number of challenges for the CIO that have been discussed at length in Chapters 4, 5 and 6.
Frank Vielba, Carol Vielba

11. Post-integration Review

Good project management involves undertaking regular reviews throughout a project as well as a final review, which looks back across the project as a whole and measures the benefits achieved against the objectives set. The final review may be combined with or may precede a review of the lessons learned, which can lead to improvements in practice in the future. However the review is organised, the important point is that it is taken seriously and given importance. Unfortunately this is not always the case and as a result some companies pay a heavy price in the longer term when they are next involved in an M&A.
Frank Vielba, Carol Vielba



12. The Role of the External Consultant

A consultant is someone that provides expert and professional advice. Many of the characteristics and skills that we discuss here apply generally to any management consultant. The focus here, however, is on the consultant that gives expert and professional advice in the area of IT in the context of an M&A project. The advice may be technical or managerial. Based on our research the use of IT consultants in an M&A project is still limited. Despite the evidence of associated IT risks in an M&A project most companies prefer to go alone rather than use external IT consultants. The main reason seems to be that companies associate consultants with high fees and they believe that using own resources is more cost effective than using consultants.
Frank Vielba, Carol Vielba

13. Conclusions

The economic logic behind M&As is the notion of the creation of greater value through enlarged combined operations than could be achieved separately by the constituent companies or organisations. Anything that threatens the creation of such value must be regarded as a risk that should, if possible, be mitigated. IT is just such a factor: it can account for a very significant proportion of the synergies identified in an M&A. The ability of IT to deliver is central to the success of many M&A deals. Reducing the risks associated with IT systems and operations in an M&A is therefore vital for the overall success of the transaction.
Frank Vielba, Carol Vielba


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