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Think about the IT minefield when you want M&A

WHAT COULD BE EASIER than merging two almost identical companies in the same sector that serve the same customer base? Judging by the stream of media invective on the topic, perhaps a fly giving birth to an elephant would be the answer. The recent divorce of Vodafone and Verizon is just one in a long line of break-ups that defy corporate wisdom.

It all seems so obvious, and so simple. One group is growing while another is in safe hands and wants to sell for all the usual reasons: economies of scale, bigger market presence, global markets. Due diligence is undertaken and every angle is considered by the buyers, and in a fanfare of publicity, the deal is announced.

By the end of year one, two or three, the company report and accounts reveal a worrying situation. The purchase/merger doesn’t look so good, and various business difficulties, costs and problems of merging systems are cited. At this point, the unification process can start to look like a financial sinkhole as a series of euphemisms for accounting inaccuracies, with growing IT problems on centre stage, are fed to the press.

Make IT and M&A mix

So does anyone with deep knowledge of IT and systems engineering ever look at the challenge ahead, or is everyone blind-sided by the sheer scale of the financial and market opportunity?

Imagine the transition problems involved: Two IT teams have spent a good percentage of their working lives building systems from scratch. Each team is convinced that theirs is the best and should be adopted by the merged group.  The chances are the hardware, operating systems and application sets are entirely different, as are the system design philosophies, data formats, security, storage and processes.

On a prima facie basis it will all look simple, but it really isn’t. Initial cost estimates created by competing teams intent on ‘winning the day’ will be biased, and one party may have outsourced its systems while the other is in-house – or they may have outsourced the system to different suppliers.

Fixing IT situations of this nature is fraught with risk. However, research reports tend to cite culture, remuneration, communication, customer confusion and lost time for why the majority of M&A activity is a bad idea. When IT is mentioned, it never gets top priority, but it should. It seems to be the least understood and most dangerous management element by far.

Technical aspects aside, the sheer effort needed to retrain staff while updating or even changing all their old systems and processes is formidable. So what should be done to avoid the big IT risks?

The impartiality syndrome

Remember that competing IT departments are not impartial. At best they will be biased, and at worst dishonest in their estimates. So double their estimates and add a 50% contingency. Seek out an independent assessment of this. Then take a serious look at outsourcing all IT supply, support, system design and the merger process – and drive a hard bargain.

However, do not underestimate the strain and pain of retraining and the alienation it can invoke. There are adversity advantages to a complete system change, with both companies suffering the same pain. Make sure managers, system designers and software writers have been on both front- and back-office desks or had a go at doing the job.

Meanwhile, management reporting should avoid the blight of ‘good news only’ – senior managers need to know that things are going wrong. There are no brownie points for hiding difficulties until they become really bad news.

It might all seem straightforward but it isn’t. IT jobs are going to go – they always do – and people have a predictable reaction. Human engineering turns out to be the single biggest item to be consistently neglected. As a general rule, merging turn out to be morphing, with everyone doing new things, and a lot of people and sites being displaced. And the cost of this never appears on the bottom line.

Peter Cochrane is an IT?consultant and former chief technologist at BT

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