Mergers & Acquisitions: Corporate IT Challenges for Investment Firms

Oct 9, 2017 12:05:00 PM

The volume of mergers and acquisitions is increasing, with worldwide totals up by 1.3 trillion USD from 2011 to 2016, reaching a peak of 6.1 trillion in 2015, the ‘golden year’ for mergers and acquisitions1. Investors, whether representing a bank or hedge fund, a venture capital firm, or members of the private equity community, must face the particular challenges associated with mergers and acquisitions for each of those transactions.

To deal with these challenges, investors are looking for technological solutions to help the M&A process become as efficient and successful as possible. An information technology department, or third-party technology provider, can assist with the mergers and acquisitions process from the initial selection and due diligence phases through to integration and profitability.

A recent study by Ernst and Young2 showed that, in retrospect, 47% of respondents believed that involving IT in due diligence could have prevented value erosion during the transaction. Further, 26% of respondents noted that IT issues often block post-transaction objectives. Engaging IT from the early stages can help to prevent value erosion and prevent those issues that can affect a company’s eventual profitability after the transaction is complete.

The top concerns for investors in the initial stages of a merger or acquisition are an unclear strategic or financial rationale and significant regulatory or antitrust risk, according to a study by FTI Consulting3. Once the terms have been set, and the action is underway, investor concern shifts to integrating assets and culture and the fast, efficient synergy of cost and revenue between the two companies.

A technology advisor, whether in-house or a third party expert, can work with the integration task force to help ensure transparent, effective communication with internal and external parties, to point team members and project managers to the most effective tools for reporting, metrics, and tracking; and to help the task force to balance the varying, and sometimes competing, priorities of different stakeholders to achieve a ‘successful’ transaction.

What Constitutes M&A Success?

A survey by Deloitte4 noted that integration planning is the most important factor in a successful merger or acquisition. But the definition of success can vary from one stakeholder to the next.

From an employee point of view, job retention and smooth integration of company cultures, with the least disruption to their daily activities, will qualify as a success. The legal department may instead focus on passing regulatory or antitrust hurdles as the primary condition of successful mergers or acquisitions.

Investors, however, must concern themselves with all of these aspects while at the same time ensuring rapid integration and the most efficient road to profitability for the new, combined company.

According to the FTI survey5, 95% of investors agree that transparent communications are critical to the success of a transaction. This includes communication with employees, customers, and regulators, which must be clear and consistent for a merger or acquisition.

IT support services are essential to ensuring the clarity and efficiency of company communications systems. For example, the adoption of a team messaging application, like Slack, can benefit a company by reducing emails, connecting remote teams, and improving productivity and efficient communications.

Cloud applications are another method that can be used to promote communications during a merger or acquisition. Because data and documents stored in the cloud are accessible by remote team members and updates are instantly available, communications within the integration task force and with other stakeholders become more efficient, transparent, and easy to monitor.

Cloud services can also benefit companies involved in M&A transactions with rapid provisioning of compute resources and reducing timelines for bringing new applications or services to market.

Getting Assistance from a Third-Party

The IT department should take stock of how IT infrastructure is currently managed by both parties and how it can either be integrated or outsourced to provide a seamless changeover for all entities. Considerations include whether the infrastructure is an area of expertise at either company or if the infrastructure is outsourced. 

detailed conversation should include whether it makes practical and financial sense to maintain infrastructure internally or if outsourcing to a third-party with infrastructure expertise is a better option. Once a course is determined, planning can begin.