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The role of IT in mergers and acquisitions

Role of IT in Merger and Acquisition.jpg
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In this blog, I look at two polarised examples of M&As and how IT can play a key role in their success or failure.  

The bad & the ugly

One example of an M&A gone awry was the case of Banco Sabadell’s acquisition of TSB from Lloyds in 2015. In April 2018 in a project to migrate 1.3 billion data records as part of the acquisition process, TSB customers reported glitches in the online system, and customers unable to access their online banking, or in some extreme cases, being able to view the accounts of other TSB users.

The episode would ultimately cost TSB’s chief executive his job, while losing the bank 12,500 customers, an estimated £176 million additional migration costs and further losses on waived banking fees. In addition to the tangible losses for the bank, the failed migration has also led to a range of regulatory investigations and public scrutiny.

While this is of course an extreme example, it does provide food for thought in evaluating the role of IT in M&As. In this case, it certainly appears from the outside looking in as though the integration of the organisations’ operations and technologies proved difficult, and, as in other examples, it perhaps demonstrates that IT did not receive sufficient emphasis during the phase of due diligence.

For McKinsey, one reason for this could be that “executives from IT and operations often aren’t included in the due diligence process, preventing them from offering valuable input on the costs and practical realities of integration”.

Specifically, it seems unlikely that a successful merge of supply chains and their associated operational processes would be fully effective without input from the very earliest stages of a process without a detailed understanding being formed of the two organisations’ IT systems. According to McKinsey, this key aspect in an M&A process is often overlooked despite the finding that 50-60% of initiatives to capture synergies as part of an M&A cycle are ‘strongly related’ to IT, but yet “most IT issues are not fully addressed during due diligence or the early stages of post-merger planning”.

The good

Although an obvious statement to make, the more knowledge that a company can gain about a potential merger or acquisition at the beginning of the process represents significant advantage, and this is another key area M&A that IT should be playing a big role.

One example of this is Unilever’s acquisition of hair and beauty manufacturer Alberto Culver in 2010. During and even before this process, “rather than decide on the target and then commission a big four consultancy to check their decision was a good one, which is standard practice, they started by building a performance model using third-party data to construct a rich picture of their market”.

In other words, firstly Unilever did not just hire an external consultancy to tell them how great a move they were making, they began modelling the opportunity for themselves in order to make a data-driven decision. In addition to the clear benefit of deep analysis into whether Alberto Culver was indeed the right target for Unilever, this process also enabled the firm to build in analysis of additional targets in order to evaluate their suitability for acquisition.

Getting IT right

Based on this analysis, one of the keys is not only getting IT right, but figuring out the central role that IT needs to play in the crucial period after a merger or acquisition. This comes from getting the CIO’s office involved early – very early – with big projects.

While this is easier said than done in times of uncertainty, it’s an increasingly vital component, and, along with the obvious financial factors, can ultimately make the difference between success and failure of the overall venture. In extreme situations such as the TSB online banking outages, there were clearly integration shortcomings between the organisations even after 3 years of the original acquisition.

The complexity of the M&A process is encapsulated by the need for effective intertwining of strategy, assessment, negotiation, and the integration of corporate entities to all come together in harmony with the objective of maintaining and building business value. While IT departments can traditionally be restricted to carrying out due diligence and smooth integrations, this approach can significantly limit the broader roles that IT teams can play in such processes.

One example of this is the approach that Unilever took to the acquisition of Alberto Culver; the complex data-driven modelling it undertook before, during and after that transaction would have required IT to build effective quantitative data models based on the input of accurate information. With a combination of publicly available data and that sourced from third parties, scenario planning can be conducted by IT in order to more accurately assess the business impact of different decisions.

From this, effective ‘what if’ planning can be conducted that not only increases the search for potential acquisitions but can also decrease time to market through the provision of reliable and accurate scenario-based outputs based on real data.

Another key role that IT can play in such a project is the key assessment of what systems to keep, which to re-asses, and which to retire. According to Myles F. Suer, Chief Platform Evangelist, CIO,  in a recent article, such ventures are a prime opportunity to “put in place a smart, holistic IT architecture”, and the chance to “leave legacy dinosaurs behind”.

Has your organisation been through periods such as this when an effective enterprise architecture could have made a massive difference to a merger or acquisition? And what role did IT play in this process – was it as central as it could have been?

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MEGA

In this blog, I look at two polarised examples of M&As and how IT can play a key role in their success or failure.  

The bad & the ugly

One example of an M&A gone awry was the case of Banco Sabadell’s acquisition of TSB from Lloyds in 2015. In April 2018 in a project to migrate 1.3 billion data records as part of the acquisition process, TSB customers reported glitches in the online system, and customers unable to access their online banking, or in some extreme cases, being able to view the accounts of other TSB users.

The episode would ultimately cost TSB’s chief executive his job, while losing the bank 12,500 customers, an estimated £176 million additional migration costs and further losses on waived banking fees. In addition to the tangible losses for the bank, the failed migration has also led to a range of regulatory investigations and public scrutiny.

While this is of course an extreme example, it does provide food for thought in evaluating the role of IT in M&As. In this case, it certainly appears from the outside looking in as though the integration of the organisations’ operations and technologies proved difficult, and, as in other examples, it perhaps demonstrates that IT did not receive sufficient emphasis during the phase of due diligence.

For McKinsey, one reason for this could be that “executives from IT and operations often aren’t included in the due diligence process, preventing them from offering valuable input on the costs and practical realities of integration”.

Specifically, it seems unlikely that a successful merge of supply chains and their associated operational processes would be fully effective without input from the very earliest stages of a process without a detailed understanding being formed of the two organisations’ IT systems. According to McKinsey, this key aspect in an M&A process is often overlooked despite the finding that 50-60% of initiatives to capture synergies as part of an M&A cycle are ‘strongly related’ to IT, but yet “most IT issues are not fully addressed during due diligence or the early stages of post-merger planning”.

The good

Although an obvious statement to make, the more knowledge that a company can gain about a potential merger or acquisition at the beginning of the process represents significant advantage, and this is another key area M&A that IT should be playing a big role.

One example of this is Unilever’s acquisition of hair and beauty manufacturer Alberto Culver in 2010. During and even before this process, “rather than decide on the target and then commission a big four consultancy to check their decision was a good one, which is standard practice, they started by building a performance model using third-party data to construct a rich picture of their market”.

In other words, firstly Unilever did not just hire an external consultancy to tell them how great a move they were making, they began modelling the opportunity for themselves in order to make a data-driven decision. In addition to the clear benefit of deep analysis into whether Alberto Culver was indeed the right target for Unilever, this process also enabled the firm to build in analysis of additional targets in order to evaluate their suitability for acquisition.

Getting IT right

Based on this analysis, one of the keys is not only getting IT right, but figuring out the central role that IT needs to play in the crucial period after a merger or acquisition. This comes from getting the CIO’s office involved early – very early – with big projects.

While this is easier said than done in times of uncertainty, it’s an increasingly vital component, and, along with the obvious financial factors, can ultimately make the difference between success and failure of the overall venture. In extreme situations such as the TSB online banking outages, there were clearly integration shortcomings between the organisations even after 3 years of the original acquisition.

The complexity of the M&A process is encapsulated by the need for effective intertwining of strategy, assessment, negotiation, and the integration of corporate entities to all come together in harmony with the objective of maintaining and building business value. While IT departments can traditionally be restricted to carrying out due diligence and smooth integrations, this approach can significantly limit the broader roles that IT teams can play in such processes.

One example of this is the approach that Unilever took to the acquisition of Alberto Culver; the complex data-driven modelling it undertook before, during and after that transaction would have required IT to build effective quantitative data models based on the input of accurate information. With a combination of publicly available data and that sourced from third parties, scenario planning can be conducted by IT in order to more accurately assess the business impact of different decisions.

From this, effective ‘what if’ planning can be conducted that not only increases the search for potential acquisitions but can also decrease time to market through the provision of reliable and accurate scenario-based outputs based on real data.

Another key role that IT can play in such a project is the key assessment of what systems to keep, which to re-asses, and which to retire. According to Myles F. Suer, Chief Platform Evangelist, CIO,  in a recent article, such ventures are a prime opportunity to “put in place a smart, holistic IT architecture”, and the chance to “leave legacy dinosaurs behind”.

Has your organisation been through periods such as this when an effective enterprise architecture could have made a massive difference to a merger or acquisition? And what role did IT play in this process – was it as central as it could have been?