For many C-suite executives, accelerating M&A is crucial to meeting their growth goals. We are entering a period where the M&A sector is rebounding before many economies do. However, in economically challenging times, achieving shareholder returns is nothing less than an imperative as boards increase scrutiny. With revenue and profitability under increased pressure, C-suites are also.
Technology is a cornerstone of the long-term blueprint for any merger or acquisition. Many organizations are turning to cloud technologies to both smooth and speed deal making and integration.
While leveraging cloud technologies is a wise move that can help with deal return, forward-thinking leaders are keen to capture an even greater value opportunity—one that can be capitalized on simultaneously. Instead of applying cloud technologies to a deal in a vacuum, savvy C-suites are merging their company’s cloud journey with their M&A journey. That merger helps create a more strategic long-term blueprint for success that moves far beyond any one deal, by creating a platform for future acquisitions.
A merger or acquisition is an opportunity to cover significant ground in a compressed period. It’s all about value at a faster clip. Companies that treat it as such, from a cloud perspective, are reaping the benefits.
For example, a recent merger in the oil and gas industry prompted a cloud journey. As a result, company leaders saw a 30% reduction in technology infrastructure costs at a significant return on investment (ROI). For every dollar in one-time investment, they reaped a dollar in recurring savings. This is significant, considering that technology savings typically require a 2-7x investment for every dollar of recurring savings.
An oil-and-gas merger prompted a cloud journey. Leaders saw a 30% reduction in technology infrastructure costs and significant ROI―for every dollar invested, a dollar in recurring savings.
Tailor your cloud journey per the deal
Maintaining M&A and cloud as separate journeys slows both on the road to value. Integrating them makes sense, but there is no one-size-fits-all solution. Much depends on the maturity of the acquiring company’s cloud program, as well as the size of the acquisition it’s making.
A complex technology estate can impede the joint M&A and cloud journey. A greenfield approach can be the answer in such situations, especially during divestitures and carve-outs.
Taking a divestiture or acquisition out of an over-engineered corporate IT environment and into its own new cloud environment is a leapfrog in value. Beyond cost efficiency and eliminating unnecessary IT “weight,” it enables innovation in a way pure integration won’t. This holds true no matter where the acquirer is on its path to the cloud.
Furthermore, a greenfield approach moves beyond IT benefits into business benefits, enabling a new business model, a flexible way of operating, and faster time to market.
A private equity firm buyer cut its Transitional Service Agreements period from 36 months down to 15 months by implementing a cloud-based greenfield IT system, creating more strategic freedom and reducing costs in the process.
Indirect benefits of cloud for M&A
Companies reap clear benefits from cloud migration for future M&A:
A mature cloud program can dramatically decrease the time it takes to realize benefits/synergies, while providing a more flexible business model.
From reduced operating expenses to lower capital requirements, cloud helps create a leaner balance sheet.
Better resource allocation
Cloud shifts attention to strategic activities that add ROI, such as integration or transformation, versus a focus on operational activities like maintenance or asset refresh.
Security standards can be an attractive proposition for prospective buyers, especially in regulatory-heavy industries.
Merging cloud and M&A journeys creates a shared success that moves companies far beyond what they can accomplish with serial journeys. We are helping organizations around the world create more value, faster, using this approach.
A few key actions will also help smooth the road ahead for companies as deal activity continues to pick up pace:
1. Involve your CIO early and often.
We see the most value achieved from senior M&A executives and senior cloud executives working in concert.
2. Streamline wherever possible.
A single-vendor, full-stack approach should be strategized. The more vendors and dependencies are added, the more they slow down integration.
3. Put cybersecurity top of mind.
Incorporating a cybersecurity capability into deals from the start will place your company ahead of competitors that treat it as an afterthought.
Using M&A as a catalyst to broaden and deepen your cloud journey makes competitive sense, but it must be done with a long-term strategy. Companies who place early, significant emphasis on technology during a merger or acquisition deliver greater shareholder returns.
That’s always a positive, but even more so in 2021 as company leaders seek to emerge from a global crisis and rebuild not only themselves, but the economies in which they operate.