By Richard Chang, Gary A. Curtis, and Justin
Jenk
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PDF Help In spite of a softer economy and a changing business
landscape, mergers and acquisitions remain a vital part of many companies'
overall strategies to attain and maintain competitive advantage.
But even in the best of economic times, merger and
acquisition (M&A) execution is a challenge. Statistics have shown that
anywhere from 40 percent to 60 percent of M&As either fail outright or fall
well short of the value they're expected to bring. Improving the financial
return for M&As, even incrementally, offers a huge potential value.
New Accenture research* reveals
that information technology (IT) integration activities throughout the
lifecycle of a merger or acquisition contribute significantly to its overall
success. Companies with effective strategic IT integration are likely to
achieve better financial results and more likely to describe the deal as a
success.
Time to Look to IT as Integral to M&A
Success The Accenture study—the first of its kind—brings out into
the open the IT issues and frustrations long felt by CEOs, CFOs and, of course,
CIOs. The study reveals that nearly three-quarters of executives in North
America and Europe do not realize how important IT is to the success of a
merger or acquisition and, as a result, they may be missing out on financial
benefits.
Accenture believes the evidence is now clear: The ultimate
success of many mergers and acquisitions depends heavily on the role IT
integration plays in the M&A process, starting during pre-deal discussions.
In addition to clarifying the importance of IT integration,
the study's results, combined with Accenture's client experience, led us to
develop eight practical ways to emulate those companies whose IT integration
added significant value to a merger or acquistion.
- Drive the IT integration program based on a vision
of future IT capability. Seventy-one percent of executives involved
in financially successful deals said that they were driven by a vision of the
future IT capability toward which they were moving. This was true for only 35
percent of executives whose deals were not financially successful.
Accenture's guiding principle when creating that future IT capability vision is
that the degree of IT integration following a merger or acquisition should
correspond to the degree of business integration in the new organization.
- Involve IT early in business discussions about the
deal. Companies that involved IT in the pre-deal deliberations for
the merger or acquisition scored higher on the Accenture study's financial
analysis of return on sales, return on assets and return on net worth, and were
more likely to describe the overall merger integration as a success. When IT
leadership is involved earlier in the business planning, they can help develop
a technology approach that supports and enables the new
business.
Because many companies do not adequately involve IT
leadership before deciding to complete a deal, they are less likely to
recognize potential difficulties in integrating technologies before the merger
or acquisition has taken place. This often leads to unexpected expenditures and
delays in achieving integration milestones and value realization, and missed
opportunities to generate additional value from IT-enabled capabilities.
- Perform IT due diligence before the deal is
signed. Companies that performed IT due diligence realized a
two-fold benefit: greater financial value from the merger or acquisition and a
more successful integration experience. Through due diligence, companies
develop a more accurate valuation of the transaction. To successfully complete
the deal valuation process, you need not only an accurate measure of assets,
you also need to know how complex the integration will be and the potential
value of an asset once it is combined with your own assets.
- Engage in detailed IT integration
planning. Accenture's research shows that, quite simply, detailed IT
planning during mergers and acquisitions can lead to greater financial success
for the deal. Overall, companies that performed detailed IT planning were more
likely to describe the IT integration as a success. Through detailed planning,
companies are able to identify and prioritize the activities most likely to
deliver value.
If IT planning is viewed as a separate and distinct
activity and is not integrated with the overall business plan for the
post-M&A company, the results are not happy ones: rework, conflicting
agendas, and sub-optimal decision making. IT will end up scrambling to provide
the necessary support without time to plan, thus potentially incurring
significant costs associated with rush orders.
- Appoint a dedicated IT integration team and
manager to oversee IT integration. Seventy-five percent of companies
that described their merger as successful had a full-time IT manager assigned
to the integration endeavor (compared with 40 percent for those that did not
describe the integration as successful).
One of the proven practices
Accenture has identified through this study and through its extensive work with
clients is that managing IT integration is a full-time job. Post-merger IT
integration is a major program—comparable to the Year 2000 initiative or the
European Monetary Union remediation program—that will sap the energy from
managers attempting to perform multiple roles.
- Use experienced staff to manage the IT
integration. Although such a recommendation sounds obvious, almost
half the companies surveyed reported that 10 percent or less of their staff had
previous experience with this kind of work. At the same time, 64 percent of
those who said their IT integration was successful, reported that more than 10
percent of the IT staff had previous integration experience (compared with 39
percent of those not rating the integration a success).
A merger or
acquisition is a "big ship" in need of an experienced captain who knows how to
avoid the rocks and shoals. The volume of changes that occur and the speed at
which they are realized can be overwhelming. Experienced individuals not only
guide the company more effectively but also inspire more confidence in the rest
of the team.
- Use external staff to help execute the IT
integration activities. Deals that were more successful financially
were more likely to have used external staff to fill temporary capability gaps
during the integration work or to provide integration expertise. External staff
can make the whole team more productive and also free up key individuals to
focus on other things.
In our experience, we have seen such staff
brought in to handle one-time integration activities that will not have
follow-on implications. They are also able to handle critical functions as
staff is diverted into organizational decision making, or if key people leave
the organization during the integration.
- Engage in IT cultural change and human
performance-related programs. When asked to identify the greatest
challenges to post-merger integration, the Accenture survey respondents named
human and cultural issues: the integration of cultures and the reorganization
of personnel.
This finding validates our experiences with clients, in
which we have consistently seen culture integration as a major challenge inside
the IT function. Integration is a human performance challenge. The retention of
key resources and morale are issues that surface frequently during these
periods of change and uncertainty. The most important thing to do from a
leadership perspective is to take a top-down view of the entire transformation
program that characterizes the merger and to communicate openly and frequently
with personnel at all levels within the organization.
These eight practical imperatives are based on Accenture's
research along with our M&A experience with hundreds of companies. Taken
together, these imperatives demonstrate how effective IT integration will have
a clear and positive impact on the financial success of the deal.
This Outlook Point of View is based on the Accenture
research study "Keys to the Kingdom: How an Integrated IT Capability Can Increase Your Odds of M&A
Success." Richard Chang, partner-Accenture
Corporate Strategy, is based in Chicago.
Gary A. Curtis, partner-Accenture
Corporate Strategy, is based in San Francisco.
Justin Jenk, partner-Corporate Strategy, is
based in London.
For more information, please
contact us.
*From 1997 to 1999,
Accenture studied 57 post-M&A IT integration projects in the United States
and Europe for which it was allowed to monitor and analyze the integration
effort for up to 24 months after the deal was completed. Accenture specifically
surveyed IT managers and directors with responsibility for and knowledge of the
IT integration effort. Target companies had sales of at least $100 million, and
the combined companies had sales of at least $500 million. The deals were in
multiple industries. European countries surveyed included Finland, France,
Germany, the Netherlands, Norway, Sweden and the United Kingdom. Accenture's
financial rating scales included return on sales, return on assets and return
on net worth.
The views and opinions expressed in
this article are meant to stimulate thought and discussion. As each business
has unique requirements and objectives, these ideas should not be viewed as
professional advice with respect to your business.  To Top
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