IT-re­lated chal­lenges that need to be ad­dressed for M&A deal suc­cess

InformationWeek - - Opinion -

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

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