Written by Miguel Vergara, Sales development manager at Oracle
2015 was a record year for mergers and acquisitions. Buyers spent $3.8trn (£2.6trn) on M&A in 2015, the highest amount on record according to Bloomberg.
For the company making the purchase, getting the right company for the right price is certainly an achievement worth toasting, but this is only half the battle. A smooth integration of the new business’ systems and processes with its own following a merger is just as vital to a successful long-term partnership.
Just ask any executive and you’ll be regaled with a few ‘war stories’ about nightmarish integrations of tangled IT systems and convoluted business processes.
Merging IT systems has become one of the most important steps in a successful integration. According to consultancy Bain, between 30% and 60% of synergies after a merger are dependent on a successful IT integration.
However, this is also one of the thorniest parts of an integration because it involves juggling a number of complex tasks. IT decision-makers need to decide which systems to keep, merge or scrap while at the same time streamlining businesses processes, keeping operations running smoothly and agreeing on the company’s new direction. There’s also always a potential for clashes between boardroom egos and turf wars between lines of business for IT teams to manage.
It’s no wonder, then, that companies often exceed their budgets for M&A integration. More than one fifth of companies worldwide surveyed by accounting firm EY have under-budgeted for a post-merger integration. When the average integration budget is roughly 14% of a deal’s total value, this can amount to hundreds of millions of dollars for large takeovers.
The tempting short cut for is to avoid fully integrating both companies’ IT systems and business processes, particularly when IT is under pressure to get everything up and running as quickly as possible. The task of combining hundreds, or even thousands, of different IT systems may seem like too much hassle.
In reality, however, most companies understand that they need to standardise their IT and harmonize their processes to cut costs and work more efficiently in the long term.
The rise of cloud software in the back office has made IT consolidation much quicker and easier. From ERP applications to entire IT platforms, cloud-based services require much less hands on time and effort when it comes to integration and maintenance when compared with traditional on-premises systems. Cloud applications are also easy to configure for a company’s changing needs, and because they are not limited by physical space can be scaled up quickly as the business grows.
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Just as crucially, getting up and running faster with the cloud means the business can forego much of the configuration work that traditionally follows a merger and quickly get back to value-adding activities that drive growth.
Of course, mergers involve more than just the consolidation of IT systems. It’s equally important for both companies involved to bring together their unique work cultures and brand identities in a harmonious way. That said, the success of their IT integration can make or break a merger, particularly as more of the business’ operations are built on modern back-office technologies.
Planning and agreeing on a unified strategy is therefore crucial. Both parties must see eye-to-eye on which system they will keep, which will be merged, and which will be written off altogether. They must identify which parts of the business will require extra investment following the merger and have a plan in place for addressing these needs while controlling costs. The cost of adapting IT systems, hiring new talent and investing in new workspace can easily spiral out of control without a measured approach in place.
IT integrations have derailed many mergers over the years, but if done right they have also proven to be the fast-track to a blissful union. Today, the cloud has made integrations simpler, faster and cheaper than ever, and for businesses eyeing an acquisition that is certainly something worth toasting.
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