Accelerating the business value from M&As
By Simon Moss
Forty-four thousand mergers and acquisitions occurred in 2015—totaling more than $4.5 trillion in value. This activity comes as no surprise: M&As enable companies to expand and create new services, enter new markets, and enhance their product portfolios.
The reason for such corporate actions are many and varied – customer or product synergies, balance sheet, geographic alignment, cost leverage, competitor removal, critical mass.
However, the time it takes to realize these benefits is often complex and difficult.
Indeed, these foundational business elements are often slowed—or even undermined—by the need to physically integrate legacy systems and data between two or more companies.
While the business case is compelling, the execution is often fraught with integration difficulties, lack of transparency and costs that are all too often underestimated. As a result, the value realization of a merger is often delayed, amortized over a longer period of time, or the cost of managing the merged entity is much less efficient and valuable.
The investment thesis of a merger tends to focus on cost and leverage opportunities in one way or another. Two paramount obstacles to a successful merger include organization and technology. Organizational mergers tend to focus on a cultural assimilation of teams and individuals to rapidly build a joint, commonly incented and cost efficient joint organization. There are many varieties. Some firms are amazing at organizational economies of scale while others encourage a culture of competition between acquired entities.
The merger as a cultural execution, is often based on strength of leadership, clear planning and commonly-agreed objectives across both enterprises.
Execution when it comes to systems and data integration, however, is considerably more complex and problematic. On the whole, these activities can be broken into several related categories:
- Rationalizing the M&A technical architecture
- Establishing common data and reporting standards for customers
- Reconciling product and pricing information
- Consolidating risk
- Achieving compliance
- Standardizing system and application platforms
- Managing and on-boarding customers across the new architecture
The key to a successful M&A and the resulting operational effectiveness lies in executing IT integrations and conversions quickly to achieve the expected cost and competitive efficiencies. But it’s not easy. An article that appeared in Harvard Business Review pegged the failure rate for M&As at somewhere between 70% and 90%.
The reasons why the expected profits don’t materialize are often complex. But IT and data integration and conversion activities are a big part of it and are often multi-year projects—with significant, often misunderstood variable costs and a high degree of risk.
Solving the Diversity Challenge and Extracting Value
It’s difficult to build a consolidated general ledger, for example, and yet many companies who have just acquired another try to move all the elements into one place before creating it. But consider this revolutionary paradigm…
- What if you forget about moving all the data into one central location?
- What if you halt the impossible task of normalizing data from disparate sources?
- What if you accept that the complexity is only going to increase over time as the companies adopt new cloud services alongside legacy systems?
When it comes to reporting business intelligence, customer awareness, supply chain transparency, human resources and a vast number of other problems, some firms are approaching it in a different way. Rather than viewing this as a large, dare we say “Big” data and infrastructure challenge, they are viewing it as a diversity and distribution challenge, which calls for a different approach.
We are finding that, like so many other business challenges, M&As are still being addressed in the same way decades later. This, despite the growing complexity of the problem magnified by the explosion in components, locations, technology and data.
For example, the “cast-in-stone” prerequisite of being forced to bring data to the analytics through tough systems and data integration steps adds years to the timeline of realizing value and the economies of scale that the business case requires.
But what if we reversed this requirement? What if instead we send the analytics to the data? We merge the information by focused, targeted business requirements “down” into the data, rather than trying to wrestle the data “up” into a format that makes it ready for required business value. Enterprises that have taken this top-down approach are seeing great returns.
This change in priority focuses the critical plan of the project on targeted business issues – single client master, consolidated general ledger, single HR records, integrated risk management or CRM reporting and so on – rather than a data and systems integration project that will then make these business challenges accessible.
The result is that the value creation of the merger becomes virtualized and abstracted from the systems and data integration cost and timeline.
In this way the value of the merger is realized quicker, the data and systems integration challenges of the merger are deterministically solved, and the IT merger can be executed in a disciplined way.
We call this a “network” rather than a centralization approach to solving problems. The deployment of a flexible, configurable fabric layered over the top of multiple data, technology, LoB and location silos, extracting and orchestrating value. There’s no need to refactor IT systems, and governance control is easy to deploy and maintain. It’s a non-invasive approach that enables you to leverage all your existing systems, and gives IT the bandwidth to make decisions about integrating and sun-setting systems in a less painful way.
Business Value Realized at a Fraction of the Cost
By decoupling the creation of business value from the traditional prerequisites of systems and data integration through a non-invasive network, M&A objectives are achieved and realized in weeks, not months or even years. Your next merger can be executed the same way, enabling multiple companies to be targeted and then assimilated—with business value realized for a fraction (around 30%) of the time and cost of traditional approaches.
Of course, you will eventually need to integrate the technology. The cost economies need to be realized rapidly so they do not undermine business margin. But delivering on business value first takes the pressure off the merger from an IT standpoint, and that can then be done with diligence and rigor, and without constant demands for haste from the business. Assimilating the “fabric” that targets and analyzes the required systems and data, and then creates results, products and even new operating models—without centralizing, homogenizing and moving data—results in enabling the M&A to consistently fulfill its intended business value.
For more information download this white paper on M&A: http://pages.pneuron.com/optimizing-m-and-a-integration.html
About the Author
Simon Moss is Chief Executive Officer for Pneuron Corporation, a business orchestration software provider. He was previously CEO of Avistar and CEO at Mantas, later acquired by Oracle. Moss also served as a Partner at Price Waterhouse Coopers and was co-founder of the Risk Management Services Practice at IBM. He also serves on the Board of Directors for C6 Intelligence. Contact him at firstname.lastname@example.org.