In today’s business landscape, organizations need to constantly up their capabilities to meet the growing demands of their customers, expand their market reach, gain competitive advantage, diversify their product portfolio and drive higher revenue while minimizing operational costs. While many companies manage to achieve these goals independently, many others take the Mergers and Acquisitions – to excel, thrive, or just survive.
During Mergers and Acquisitions, where diverse technology systems from two different organizations have to be synchronized and streamlined for maximum results, IT’s role is indisputable. Not only can technology help enterprises realize more value from their efforts, but it can also drive better synergies. Organizations that use modern technology to rationalize systems and make well-planned and well-thought-of decisions about integration are the ones to achieve success and cost savings.
The complexities of mergers and acquisitions
Organizations looking to expand their business, extend beyond geographies and cater to a new market often have a lot to benefit from a Merger and Acquisition: from access to a diversified portfolio or skilled labor to opportunities to grow, and more, Mergers and Acquisitions offer a great way to innovate.
Yet for many, the inherent value and true cost of IT are often not assessed and captured. According to a study, only 14% of all deals surpass their early expectations for income or rate of return. The study also states that, at its core, an acquisition can be deemed a success only if the return on invested capital is greater than the buyer’s cost of capital, however unlocking real potential relies on strategic planning, funding, and resourcing.
Numerous complexities arising during the process often result in shoddy Mergers and Acquisitions. The impact of such mergers on customer experience and day-to-day business operations is extremely far-reaching. Some of these complexities include:
- Merging systems: When two organizations come together through a Merger and Acquisition, the challenges that arise while merging systems are massive. For instance, in the banking sector, a Merger and Acquisition of two organizations with different trading systems is grueling. Assessing each unique system in isolation and understanding the implications of integration is extremely critical to ensure seamless results. Changing regulations, uncertain trade agreements, and fluctuating currencies can impact Mergers and Acquisitions in more ways than one.
- Overcoming integration issues: When it comes to Mergers and Acquisitions, it is natural for both companies to have different strategies and systems, and that makes integration of technology and operations challenging. It is reported that 70% of technology integrations fail in the beginning due to a lack of inclusion of IT leaders, strategy, funding, and/or resourcing. When IT teams are not included early in the M & process, organizations lack the insight they need on the costs and repercussions of integration. In the absence of the right planning or the right amount of due diligence, organizations end up spending a substantial amount of time overcoming integration challenges.
- Taxation and P&L: Although Mergers and Acquisitions often drive growth, cross-country mergers bring with them the challenge of different tax regimes – which can negatively impact valuation and risk. According to an E&Y study, 76% of organizations fail to complete or cancel an acquisition citing tax implications as the primary reason. As tax reforms constantly happen and tax rates constantly change, rules related to grants and incentives continuously fluctuate. Tougher enforcement actions and ambiguity regarding tax rates make the modeling of Mergers and Acquisitions much more difficult.
- Maintaining the trust of key stakeholders: Improper planning, inadequate due diligence, and deficient synergies can have a negative bearing on employees, customers, partners, etc. More than 50% of business synergies are technology-enabled. Therefore, ensuring transparency from the beginning of the deal and maintaining the trust of key stakeholders before, during, and after a Merger and Acquisition is critical to achieving maximum returns.
How to ensure smooth technology integration during a merger and acquisition
Mergers and acquisitions have never been easy, but as the tech stack gets increasingly multifaceted, this activity is riddled with complications that once didn’t exist.
Unplanned or inexperienced buyers have more than a 50% chance to be in worse shape financially three years post-deal. Therefore, organizations must carry out detailed and careful planning and ensure the involvement of IT early and throughout the process for successful execution and the subsequent realization of benefits. Not only should organizations focus on integrating diverse IT systems, but they must also drive efforts in creating IT synergies throughout.
According to McKinsey, acquirers can generate higher ROIs by being better prepared to capture the 10 to 20 percent expected cost savings from successful IT integrations. At the same time, thinking ahead of current acquisitions and creating a strong acquisition platform to allow quick integrations for synergistic acquisitions, can significantly increase the ROIs of current and future acquisitions. Given more than 50% of synergies are IT-enabled, an implementation partner with the right expertise can systematically move the needle on both topline and bottom-line ROI.
Having an excellent technology strategy, with Cloud/AI/ML/RPA at the focal point of a Merger and Acquisition transaction, can significantly increase efficiencies and move normal targets of 10-20% synergies towards 20-60% realized synergies – depending on investment at the time of the merger.
The realized synergies are often inferior to expected synergies not just due to unexpected complexities during M & A, but also because of a lack of involvement, planning, funding, and/or resourcing for technology team empowerment. That said, here are some tips to ensure smooth technology integration during a Merger and Acquisition:
- Add tech system upgrade to the core strategy: As companies continue to grow and expand through Mergers and Acquisitions, the pressure on IT to deliver new products and services, improve operational efficiency, and ensure adherence to applicable regulations is massive. To maximize ROI, organizations must include tech system upgrades to their core Merger and Acquisition strategy to determine key trends, identify opportunities for cost-saving, and improve risk management. By having a plan in place on how systems can be integrated, they can ensure they have sufficient staff and resources necessary to support this endeavor.
- Create efficiencies at the time of transformation: Another critical factor to keep in mind during a Merger and Acquisition is to create efficiencies at the time of transformation rather than after it. Instead of keeping everything legacy, it is important to assess the capabilities of each system, assess risks (and opportunities), and identify the inherent value – during the due diligence phase itself. Such early evaluation can help organizations in choosing the right strategies from restructuring, revamping, or retiring systems that no longer add value.
- Offer a seamless experience to employees and customers: Organizations undergoing Mergers and Acquisitions also need to pay close attention to employee and customer experience. Given that Mergers and Acquisitions can cause many hiccups due to the changes that happen internally – organizations must integrate systems without interruptions. They should also drive efforts in translating existing and future business requirements into viable technical solutions. This will not only help ensure the current demands of customers are met, but it also helps meet scalability needs while constantly offering a seamless experience to employees.
Technologies to embrace during a merger and acquisition
The pace at which the business environment is evolving makes Mergers and Acquisitions inevitable. However, given the technology ecosystem we live in today, it might be a good time to embrace technologies that aid the process.
- Moving to cloud-based systems is a great way to transform the Merger and Acquisition experience. In addition to bringing down the operational costs of a merger, the cloud allows organizations to move away from legacy, capital-intensive systems towards a more flexible operating model that can ramp up or down as business needs change.
- Using AI and ML to automate mundane, error-prone processes can also help in expectations and ROI. By using scalable and extensible architectures, organizations can leverage value from the staggering amount of data, thereby driving efficiencies and accelerating time-to-value from any Merger and Acquisition.
- RPA can also help a great deal in reducing manual intervention and driving much-needed transformation from a Merger and Acquisition. RPA sets the stage for quick and efficient consolidation of diverse business systems while helping organizations capitalize on new business opportunities and cost efficiencies. From data extraction to mapping, regulatory headaches to operational overheads, customization to testing – RPA can be leveraged to reduce risk and accelerate the Merger and Acquisition life cycle.
At Wissen, we understand the complexities that come with Mergers and Acquisitions and understand the role technology can play in ensuring a successful outcome. We offer an array of services across IT modernization to help organizations create unified enterprise systems, implement forward-thinking digital strategies, and achieve a competitive advantage with business transformation.
Our expertise in a wide range of cutting-edge technologies such as Artificial Intelligence, Machine Learning, RPA, and Data Analytics enables us to make informed decisions for our customers while helping them leverage the most appropriate technology for the problem. With years of experience working with and understanding legacy systems across several industries, we bring with us deep domain and tech expertise and provide ‘best-in-class’ cost-effective solutions that deliver on the promise of maximum ROI.