Maximizing Success in M&A IT Integration: Tactics for Winning the Integration Game

Companies that are struggling with growth are looking for more and more lucrative M&A deals that can stimulate the growth and new business building. 

Over the past years the organic growth of many medium to large companies has been getting slow. This can be seen in IT sector where applications reach their organic user limit and need to explore new ways to evolve the product or major IT consulting firms whose employees can be counted in hundreds of thousands – the market has been divided and there are no possible areas to grow, these companies need to enter new sectors or become the pioneers of new technology. 

After implementing aggressive cost cutting program and reorganizations they naturally turn to M&A to reach their financial and strategic goals (saving money will get you only so far, you need predictable, growing income sources to grow). However in today’s market, companies can’t afford to spend decades of R&D into new products that might turn out not as expected or the market has gone in a different direction. M&A seems to be a perfect solution – acquire technology, know-how and experts, implement everything in your own process, fund the growth and you have a new business. The problem is that due to today’s aggressive market conditions companies often question whether they can reach their strategic goals and live up to the high evaluations. Often the time to integrate both sides and find synergies is too long and the momentum is lost.

There are four very important tactics to consider that can increase the likelihood of success. All these tactics apply to the general M&A process, but as we are a software company, we will be looking from the IT angle and how it can support decreasing your time-to-market and increasing profits by helping to find the synergies faster.

1. Announce the expectations and plans early.

Companies that publicly stated their goals and plans before the transaction was closed often see increased returns compared to their peers. Publicly stating expected costs and revenue, defining a roadmap with a set time frame will increase the trust, motivation and commitment. However, to define such goals (especially costs and timelines) in today’s digital world, you need a fast and reliable evaluation of existing and planned IT infrastructures.

An example: with an average cost of $30 million for ECC to S/4HANA migration there is a high chance that finding synergies will be very hard if both companies are in the middle of the migration and both have chosen different approaches (Greenfield vs Brownfield) and there is no common roadmap and cost analysis before the deal is made. Taking three steps back and restarting the migration will result in major costs and extended timelines, however stopping on one or both sides will result in major losses.

2. Have transparency 

Publicly report your deal’s progress and evaluate the progress every quarter. By adopting a transparent approach to reporting the progress of your M&A deal and conducting quarterly evaluations, you can unlock significant financial benefits and uncover enhanced synergies. It is crucial to recognize the pivotal role of your Chief Technology Officer (CTO) by including them as a board member and valuing their insights instead of dismissing their concerns as insignificant. In fact, companies that prioritize transparent internal and external communication have been shown to potentially increase shareholder returns by up to 6%. However, this percentage can be further amplified when IT is acknowledged as a powerful business enabler and revenue generator. Treating IT issues as strategic matters and aligning them tightly with other company processes will enable you to tap into untapped potential and drive sustainable growth. This is a great example why CTO needs to work very closely with the CFO.

For instance, consider the recent case of a consumer goods conglomerate that recently completed an M&A deal. By fostering transparency and elevating their CTO to the board, they ensured that IT challenges were not brushed aside but given due attention. This allowed the company to address critical IT issues proactively and align their IT infrastructure with their strategic goals. As a result, they experienced improved operational efficiencies, streamlined workflows, and enhanced customer experiences already in the first year after closing the deal. By leveraging their IT capabilities strategically, they identified new revenue opportunities and expanded their market presence, leading to a substantial increase in profits. 

3. Capture synergies quickly

The ability to swiftly demonstrate tangible results stands as the most robust predictor of increased shareholder value return. Companies that effectively accomplish this feat outperform their industry peers, witnessing an average surge of approximately 20 percent in shareholder return. By efficiently showcasing the outcomes of their strategic initiatives, these companies instill confidence among shareholders and create a compelling narrative of progress and success. The importance of promptly delivering concrete results cannot be understated, as it not only cultivates investor trust but also solidifies the company’s position in the competitive market landscape.

4. Have an infrastructure in place for fast onboarding

The preceding tactics highlight two crucial aspects, which are speed and transparency. It is imperative to avoid the path taken by unsuccessful organizations, which includes maintaining separate IT landscapes, operating in siloed teams, lacking a clear and common IT strategy, duplicating system functionality (leading to additional costs), and most importantly, having an unprepared infrastructure that hampers the integration of M&A and delays the realization of synergies.

To ensure a successful M&A journey, it is essential to develop an IT infrastructure roadmap that encompasses the following elements:

1. Prioritize the implementation of an integration platform or gateway as a primary objective. This will facilitate seamless data exchange and harmonization between the merging entities.
2. Align your IT infrastructure with your business processes, allowing for easy adaptation and integration as the merger progresses. This approach avoids the need to reinvent the wheel and minimizes disruption.
3. Establish well-defined procedures for conducting pre-merger IT evaluations. This assessment will help identify potential challenges, risks, and opportunities related to the IT systems and processes of both companies.
4. Define a comprehensive action plan for capturing low-hanging fruits and optimizing synergies after the deal is finalized. This plan should outline specific steps for streamlining operations, eliminating redundancies, and maximizing efficiency.

By incorporating these elements into your M&A IT integration strategy, you can enhance speed, transparency, and overall success in achieving seamless IT integration and unlocking synergistic benefits.

In conclusion

Successful M&A IT integration requires a proactive approach that emphasizes speed, transparency, and careful planning. Companies that have achieved remarkable shareholder value returns have demonstrated the ability to swiftly deliver tangible results, often outperforming their peers by approximately 20 percent. To avoid the pitfalls of failed organizations, it is crucial to address key challenges such as separated IT landscapes, siloed teams, lack of a clear IT strategy, system functionality duplication, and unprepared infrastructure.

To navigate the complexities of M&A IT integration effectively, it is essential to develop a comprehensive IT infrastructure roadmap. This roadmap should prioritize the implementation of integration platforms or gateways, ensure alignment between IT infrastructure and business processes, establish procedures for pre-merger IT evaluations, and define action plans for capturing synergies post-deal.

By embracing transparency, involving the CTO as a board member, and fostering open communication channels, companies can enhance shareholder returns and uncover hidden synergies. The strategic integration of IT assets and processes plays a pivotal role in unlocking untapped potential, enabling revenue growth, and driving operational efficiencies.

As CTOs and CFOs, it is imperative to recognize the strategic importance of IT integration in M&A transactions. By taking a proactive and well-planned approach, companies can overcome challenges, achieve rapid results, and position themselves for long-term success in the dynamic business landscape. Embracing transparency, aligning IT infrastructure with business objectives, and leveraging the expertise of the CTO will be instrumental in realizing the full potential of M&A IT integration and delivering sustained value to shareholders.