Have you gone MA&D?

Judging by the title of this article, you may wonder what this is. Welcome to the world of mergers, acquisitions and divestitures (MA&D).

With the current low cost of capital, continued globalization and thriving technical innovation, MA&D have become strategic hotbeds for companies looking to become more competitive in the market and deliver value to stakeholders. The 10,000-foot view shows the synergies created from such acquisitions or divestitures. But beneath the synergy forecasts — and the ability to realize those synergies — is enough work to make any chief information officer “ma&d.” It all looks good on paper, but what does it really take for a smooth transition?

IT is a key component in MA&D

Most large organizations that undertake an MA&D event are unclear about the process and its implications, especially in terms of IT. Ultimately, companies will spend more and take longer to separate and integrate than originally planned, leading to deal erosion. More often than not, companies will undertake MA&D activities without considering the IT implications. Yet the costs to merge, acquire or divest a business relate more to the complexity of the IT landscape than to the deal cost alone.

IT is one of the largest M&A one-time cost drivers. Bringing IT in late, along with ineffective alignment between IT and the overall separation or integration management office, will pose a challenge to any company looking to fully realize value creation of the initial deal. Stranded costs and dis-synergies can be 15 to 20 percent higher than originally anticipated. The domino effect of this can increase operating expenses by at least 10 percent after the deal while eroding shareholder value.

IT challenges can drive you ma&d

What IT challenges can drive you ma&d during an integration or separation? In today’s integrated IT landscape, shared platforms and the shift away from legacy apps make business-aligned IT both difficult and expensive. When you start on the MA&D venture, companies should consider the complexities and risks:

  1. Enterprise Resource Planning (ERP) systems and applications can be difficult to clone or separate.
  2. Application portfolios tend to be old, built on legacy technology and rarely documented, driving up the complexity of the integration or separation.
  3. Incomplete asset registration or relying on suppliers to know creates another complexity to integrating or separating IT.
  4. Lack of coordination among business units and IT with regard to business needs and technological limitations can create risks due to interdependencies.
  5. During IT integration or separation, security requirements can also increase complexity.
  6. Most companies do not have enough IT resources to execute an integration or separation.

How to be glad, not ma&d

Based on our experience, we know companies that successfully go through M&A events do the following:

  1. Bring IT to the table early.
  2. Define the IT end state.
  3. Leverage the appropriate resources to support workstreams.
  4. Set up an overall integration or separation management office, with defined cadence, before signing the M&A transaction.

IT is key to successful M&A transactions. By bringing IT into the transaction planning early, proper alignment and planning can be created to reduce overall risks. This will increase the overall speed of IT integration or separation, create the ability to manage expectations and will realize value.

Building a structured integration or separation management office will allow companies to identify appropriate IT costs as part of the overall initial investment of the deal and set realistic milestones and synergy targets. Proper coordination will ensure risk mitigation and avoidance and allow for a more cost-effective transition.

Dick Steiner is senior managing partner in DXC’s Mergers, Acquisitions and Divestitures practice. A leader in IT acquisitions and divestitures, he led splitting the IT infrastructure for HP into two distinct Fortune 50 companies. This included network, data centers, directories, end user workplace services and application support. Over the course of his career, he was involved in the execution of more than 40 acquisitions and divestitures as an IT leader.


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