IT-related challenges that need to be addressed for M&A deal success
enerally, most of the M&A exercises in the industry take in account the financial and legal aspects as the prime drivers to fuel the entire transaction for obvious reasons — doing business. While beyond doubt these drivers are indeed the crux and very reason to expand businesses, the support functions like Information Technology are also expected to adhere with the pace of entire transaction.
Almost all the industry segments — be it manufacturing, Oil & Gas, utility or BFSI — highly depends on IT systems; and for this mere fact, the M&A deal at the flight altitude expects smooth amalgamation of incoming entity’s IT environment with the buyer’s IT environment. While this is certainly adjudged by the senior management, IT leaders need several levels of vigilances to ensure that business goals are met without any hiccups that IT might cause.
Personally, I would recommend IT as one of the qualifying criteria and a decisive factor that can mark any M&A deal. In today’s world, IT has grown exponentially and we witness extremely wide variance of technological establishment right from OS platform, networking components, the protocols that drive these networks, security components to the end-user interface. At an enterprise level, it incurs substantially huge cost to lay them down and operate. Hence, it becomes utterly commercially non-viable to incur changes within the existing landscape so as to incorporate newer but different IT environment and expect all to run flawlessly right from day one.
While all M&A deals are architecture considering business goals, IT also needs to mark its impact right from the evaluation stage. Some of the factors that IT needs to consider include: 1) Clear understanding about the new entity is very critical right from initial evaluation stages. The business development teams (that generally lead such M&A deals) may not understand the IT areas, but a checklist to take stock of the incoming entity’s IT landscape is essential. Subsequent gap analysis can then be executed rather comfortably. 2) Gap analysis takes in account the variances between both IT landscapes and surfaces the high level matches and mismatches. The magnitude of the variances/differences can then be tangibly accredited to the cost of inception, which can be fed to the deal team. Substantially huge cost, if derived, can act as one of the vital decisive parameters for the entire deal itself. 3) The organization proposed to be incepted may have substantial differences with respect to both IT environment, however, largely an intermediate IT environment/setup can justify the differences and ensure adequate integrations. 4) Dealing with technology likes and differences are quite manageable during most of the cases. However, licensing and contract management appears to be real tricky to deal with. Licensing and contracts need not necessarily be of the same nature and cycle. Hence, a considerable due diligence is highly essential. Contract novation for obvious reasons has to be driven by the subject matter expert. 5) Differences of workflows driven by IT systems that support business functions needs to be studied in depth, since it may not be expected to change the manner in which those workflows were functioning and may result in a real mess for end users. Proactive analysis and a well thought plan of action can ensure smooth operations with respect to the level of amalgamation of automated and manual processes. 6) IT security often triggers high risks, however, at times they are not specified in measurable terms and often don’t get enough attention. M&A exercise is regulated by governing authorities and there are various compliance issues in financial and legal areas. Among them, several are highly dependent on IT systems and the data handled within them. In fact, IT security itself can play a decisive role while materializing the deal itself. This area is a subject on its own, but to count a few are IT security standards and practices that both the organizations follow, regulation compliance issues that mandate IT security practices and measures, data handling and management, law of land that influences complete IT security practices, etc. 7) Human resources and the way skill management is handled also play a vital role during incepting incoming organization. Often, resource duplications are seen as a cost overhead; however utilizing them sensibly for other IT areas/avenues is a positive approach of handling the situation. Though, finally, it all boils down to the cost factor and that should be left to the senior management to decide.
Overall, a thorough proactive involvement of IT as a crucial support wing during the early deal evaluation stage will help save cost, as well as avoid integration issues and business disruptions at a later stage.
Dharmesh Rathod is Associate ice resident- IT In rastr ct re & ro ects ro , Aegis i ited