Get the Technology Side of Mergers and Acquisitions Right
By effectively integrating their IT environments, merging companies can mitigate risk, streamline operations and boost productivity throughout the new organization.
IN THIS ARTICLE
Key Considerations for M&A Transactions
The M&A Process: Merging IT Operations
Make It Happen: Solutions, Services and Strategies
The Mergers and Acquisitions Landscape
Businesses are managing more data and IT systems today than in the past. They’re also conducting mergers and acquisitions at an unprecedented rate. Take the two trends together and you have more organizations struggling to integrate more technology across more M&A partners than ever.
According to Forbes, M&A volume in 2021 was the highest on record — not only in the number of deals but in the dollar value per deal. And, of course, nearly every business on Earth is currently managing more technology than at any previous point in its history. According to Spiceworks Ziff Davis, 88 percent of companies planned to either increase or maintain their technology spending in 2022.
Too often, company leaders treat IT integration as an afterthought during the M&A process. However, as IT leaders know, technology can be a make-or-break factor in the success of an M&A deal. Effective technology integration can act as a force multiplier, giving business units access to new customer data, more effective systems and streamlined workflows that make employees more productive and efficient. On the other hand, poor integration can lead to ineffective, cumbersome and redundant systems — and, even worse, it can put sensitive data at risk.
As organizations go through the process of M&A transactions, they often find their internal IT teams lack sufficient bandwidth to handle the challenges of an acquisition. Not only does the process add a significant burden on top of their day-to-day responsibilities but many IT professionals lack experience with M&A deals, making it difficult for them to provide strategic input. Planning, discovery and implementation all represent major challenges during M&A deals, and it’s rare for organizations to have internal IT staff members with expertise in each of these areas.
During an effective M&A deal, IT professionals or external partners will need to establish (and meet) specific end-state goals and deadlines. They’ll need to conduct exhaustive IT inventories of all parties to the deal, decide which IT systems will serve the combined organization best in the future, establish an effective transition plan, and manage communications and projects across multiple organizations. They must also identify and plan around any integration interdependencies; minimize adverse impacts to internal and external customers; and ultimately achieve product, service, technology and cost synergies.
It’s a significant challenge, and it shouldn’t be treated lightly. Rather than scrambling to address IT integration late in the M&A process, organizations should make technology a key consideration early on and include IT in the assessment process of the acquisition. This may mean working with a trusted partner on processes such as integration preparation, end-user application rationalization, detailed integration planning and value realization. The timing here matters: The longer it takes to resolve challenges, the greater risk a deal faces. But by identifying areas of both challenge and opportunity early during the M&A process, then planning around those realities, organizations can set themselves up for successful deals that lead to long-term value.
Security Is Essential Throughout an M&A Deal
Before: Organizations must take steps to mitigate risk before, during and after the M&A process. A security evaluation should include a review of any publicly available information (such as disclosed breaches), as well as a high-level security assessment.
During: Risk assessments should become more detailed. The acquiring organization should conduct an inventory of all data assets and assess the target company’s infrastructure, network, systems and policies.
After: Risk mitigation doesn’t end when the deal is done. After two organizations merge, security leaders should decide whether to retain robust security solutions for each organization or to unify security approaches across the new company.
Key Considerations for M&A Transactions
Mergers and acquisitions are enormous undertakings with countless moving parts, but a few overarching priorities stand above the rest. As they approach potential M&As, organizations should focus on these three key issues:
CULTURE
Culture is often cited as a critical factor in the success or failure of M&A deals, yet organizations often fail to get it right. Why? In part, this is because culture is maddeningly difficult to measure — so much so, in fact, that leaders often have trouble assessing the culture of their own companies, let alone the organizations they’re seeking to acquire. Further, culture can become deeply ingrained in an organization, making it difficult to permanently change a company’s culture (and making misaligned cultures a major risk to an M&A deal). “It is difficult for people to recognize their own culture and how it exerts an influence on them,” notes Deloitte in a report on cultural integration in M&As. “The staying power of culture is that it feels right to people; new cultural values that are imposed on people seldom replace their underlying values and beliefs in the long run.”
TECHNOLOGY
Not only is a successful technology integration important for cost optimization, data security and overall productivity, it can also make the difference between retaining talent during an M&A deal and losing top performers. “We see the best acquirers move quickly when integrating to a single set of systems,” notes Bain in a report on IT integration during M&As. “They reduce the talent loss and distraction from extended integration periods, and they capture synergies earlier. In fact, according to our estimates, more than half of business synergies are often contingent on systems integration.” According to Bain’s research, inadequate systems integration increases complexity and costs over time in measurable ways. Compared with best-in-class systems integrators, the companies that did the worst job integrating IT during M&A deals ran four to five times as many applications, spent two to three times as much on IT as a portion of revenue and saw a tenfold increase in costs for further M&A deals.
PROCESSES
Before a merger or acquisition, leaders should review processes and policies across all organizations in the deal — including processes and policies around IT. This means looking beyond the challenge of integrating the actual infrastructure and systems to assess factors such as technology capability and maturity. During such assessments, business and IT leaders should identify obsolete systems as well as any technical or financial risks, review information security processes, and develop a roadmap to accelerate M&A goals and objectives. It may be tempting to wait and figure out process integrations after a deal is done, when stakeholders have on-the-ground experience with how the acquired organization operates. However, this can lead to significant problems, and leaders should instead seek to begin integrating processes across organizations as early as possible. When process integrations fail during a merger or acquisition, the problem most often lies at the beginning of the process rather than at the end.
CDW’s solutions and services can help you at every stage of the mergers and acquisitions process.
Why M&A Deals Succeed (and Why They Fail)
Data from Bain’s “Global M&A Report 2022 ,” which includes a survey of M&A practitioners, sheds light on some of the most common causes of deal failure and success.
Considering deals that met or exceeded expectations, what were the key reasons that they succeeded?
46%
Clear value creation/economics for all parties
44%
Clear strategy/objectives
42%
Strong senior management commitment
Considering deals that did not meet expectations, what were the key reasons that they failed?
41%
Poor cultural fit/lack of trust
36%
Lack of strong senior management commitment
34%
Strategy/objectives were unclear
Source: Bain, "M&A Report 2022," February 2022
The M&A Process: Merging IT Operations
The IT team should be engaged in every phase of the M&A process. Acquiring organizations need to plan for integration as early as possible, and target organizations can increase their value by leveraging cloud technologies and following best practices for IT deployments.
By paying attention to these five considerations, teams can speed up and simplify integration:
ASSESSMENT
Leaders should begin the IT discovery process as early as possible. This is sometimes challenging, given the widespread presence of shadow IT within many organizations. Onsite IT surveys are a must, but tools such as software asset management programs are also important. Overall, the goal of this process should be a deep understanding of integration complexities, interdependencies and synergies.
PLANNING
A solid IT integration plan should detail key objectives of the move and include a timeline for the rollout of IT tools. It’s also important to identify obstacles to success — along with plans for overcoming them — and assign each objective to a specific stakeholder. Often, a third party can assist with key projects, allowing internal IT teams to remain focused on their day-to-day jobs.
INTEGRATION
A trusted partner can define data center consolidation strategies and migration plans, draft security policies and implementation plans, migrate IT infrastructure and business systems, and perform validation testing. During the integration phase, leaders should prioritize customer, financial and transactional data, which includes working through critical issues such as data management, encryption and regulatory compliance.
SECURITY
Merged organizations must protect their infrastructure and data against both internal and external threats. To address constantly evolving threats, leaders should assess their newly combined infrastructure for vulnerabilities and deploy a multilayered security approach that will secure customer and institutional data. Third-party health checks and vulnerability scans can help leaders identify gaps they otherwise might miss.
FUTURE CONSIDERATIONS
As organizations emerge from the M&A process, IT leaders should prepare their organizations to integrate advanced solutions that position them to innovate and take advantage of new opportunities. Also, leaders should track and measure the financial impacts of integration, assess the value realized from the M&A process, and preserve all integration documents in case they are needed for future audits.
CDW can help you speed up and simplify IT integration in your mergers and acquisitions deal.
The M&A Landscape: By the Numbers
According to a 2022 report from Deloitte, business leaders expect the number of mergers and acquisitions to grow in the near future, driven in part by a desire for transformational changes.
92%
of executives said they expect deal volume to increase or stay the same in the coming year.
54%
of respondents said a tightening regulatory environment will spur more deal activity as businesses race to beat the implementation of more challenging obstacles.
53%
of business leaders said their organizations restructured since the beginning of the COVID-19 pandemic.
28%
of executives said that digital transformation was the key reason for restructuring their businesses, with an additional 21% citing process automation.
Source: Deloitte, "2022 M&A Trends Survey," January 2022
Make It Happen: Solutions, Services and Strategies
As organizations work through mergers and acquisitions, they can take advantage of a variety of tools and services to facilitate the process. Further, paying attention to key strategies can improve the outcomes of M&A transactions.
Technology integration is complex and challenging. Merging companies need tools and partners they can rely on.
Solutions to Support M&A
Discovery tools: These tools can help IT teams determine what technology assets exist within each organization and how they interact with one another.
Cloud technology: The public cloud can help merging organizations improve visibility, management and efficiency during a move.
IT service management platforms: In recent years, ITSM platforms have added several features that make them critical components of change management.
Data storage and migration: IT leaders must identify the most efficient and secure ways to unify data from across merging organizations and ensure data access for relevant stakeholders.
Compliance and risk management: Cybersecurity solutions play a critical role during the M&A process, keeping corporate and customer data safe from hackers and preventing new vulnerabilities from popping up.
Software management: These tools enable software asset management to prevent penalties during an audit, help business units locate needed software programs and eliminate redundancy.
Services to Simplify M&A
Gap analysis: During a gap analysis, a third-party partner will compare current states with merging organizations’ desired end state, helping internal leaders map their route and use resources more effectively.
Integration planning: This type of service typically includes program management, communication planning and IT asset roadmaps.
Security assessments: Vulnerability assessments and penetration testing from a third-party partner can help IT and business leaders identify weak points in their cybersecurity posture.
Tenant-to-tenant and Active Directory integration: Organizations must make sure their combined business units can seamlessly communicate with one another.
Data center/cloud subscription consolidation: This is an area of potentially significant cost savings for merging organizations, but it often takes an outside set of eyes to identify consolidation opportunities.
Configuration services: Increasingly, organizations rely on external partners to facilitate large-scale device deployments. A partner can configure new machines and even ship them directly to users at a scale most internal IT teams can’t match.
Strategies for Success
Communication plans: It’s not enough for leaders to simply craft a great M&A integration plan. The plan must be effectively communicated to employees throughout both organizations in a way that promotes buy-in and alleviates the anxiety that often accompanies change.
Workplace options: In years past, it was a given that most employees would work at a physical branch office after an M&A. Today, organizations must decide whether workflows will be digital, in-person or hybrid.
Cloud governance: Even under normal circumstances, it’s easy for cloud environments to sprawl out of control, leading to new risks and unexpected costs. This is doubly true during an M&A deal, making it important for leaders to closely align their cloud governance as their organizations merge.
Data policies: Merged organizations must resolve any differences in their data retention policies, ensuring that new practices are uniform and consistently executed.
Contract consolidation: Merging organizations often can save money by unifying contract agreements for services such as telephony, internet connectivity and public cloud resources. It’s also important to address any redundancies to improve efficiency and reduce costs.
Key CDW Services
CDW’s experience and expertise in M&A position it as a valuable partner as organizations address challenges such as IT integration. Among the key services CDW can provide for merging companies:
Data storage and migration: CDW’s experts can help organizations migrate and store data securely and help get network and data center infrastructure ready to meet the needs of the new organization.
Regulatory compliance and risk management: Complex regulatory requirements create additional layers of risk during a merger or acquisition. The right mix of risk management and cybersecurity solutions can keep IT systems and data secure and compliant.
M&A Strategy Workshop: CDW consultants work with clients to develop high-level M&A integration strategies, current-state reviews, future-state envisioning, roadmaps, and risk and cost assessments.
Story by:
Michael Bock, a director of sales and serves in a variety of roles supporting coworkers, consulting with customers, and enhancing manufacturer relationships across product and service delivery channels. Currently, he leads the CDW team focused on helping companies in Florida and Georgia gain a marketplace advantage through technology solution design and integration. To support this priority, Mike maintains a high-level of connectivity with thought leaders and business executives from the world’s leading providers of innovative technology. Additionally, Mike is responsible for creating and refining the sales and operational processes across his organization to ensure delivery of the ultimate customer experience at CDW.
Matt Varin, who has been in the IT industry for 17 years, most recently serving the Illinois and Wisconsin marketplace where M&A has seen tremendous momentum. He currently oversees all of CDW project-based business in Wisconsin, where CDW successfully delivered over 1,000 projects in 2021. Matt gets the unique ability to work with Fortune 100 companies, SMB and Government Agencies which has given him a diverse perspective on how organizations can take advantage of technology to solve their business challenges.
Debbie Brenner, who has more than 35 years of experience within the technology and cybersecurity industries including as a former CISO and CIO. Using the knowledge she has gained with her years of hands-on experience in C-level roles, Ms. Brenner now provides Strategic Consulting & Advisory Services, including M&A consulting, for clients across all industries.
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