The US saw roughly 5,000 M&A transactions in the first half of 2015, and if you have a leadership position in your firm’s information technology department, an acquisition will have a direct impact on you and your team. Whether attempting to produce a more vertically integrated business and capture a greater percentage of the overall value chain within a sector or trying to hedge against sector cycles by acquiring a firm as a hedge play, many firms will eventually embark on the acquisition of dissimilar businesses that utilize different types of systems that support completely different business processes. The primary goal of any integration is to deliver benefits promised in the deal’s financial model as successfully as possible and as early as possible. While this goal can be relatively straightforward to achieve with acquisitions that expand a firm’s basic business model, a firm acquiring a dissimilar business can face special challenges.
The Standard Integration Playbook
In a typical acquisition of a similar business, the acquiring entity will likely have an array of mature systems and processes that address the business capabilities of that sector. From a systems standpoint, the work of integration revolves around the selection of the combination of existing systems that best support the new combined entity. As a mechanical process, this normally involves the systematic enumeration of specific business capabilities, along with the systems used to support these business capabilities in each of the pre-acquisition entities, followed by an equally systematic selection of which systems will be retired and which will continue to be used going forward. With a similar systems landscape, the IT work involved in these types of acquisitions tends to be fairly straightforward, with firms involved in significant M&A activity over time developing and executing on an actual “playbook” for integration of like firms.
The Challenge of Difference
When managing integration related to dissimilar businesses, the standard same-sector playbook has less relevance. While an acquisition involving a same-sector business will often be predicated upon expected cost synergies, specifically in terms of G&A cost reductions associated with centralizing corporate functions such as accounting, human resources, information technology, or back-office operations, an acquisition of a dissimilar business may or may not expect significant cost synergies. If the acquired company is small relative to the acquiring firm, cost synergies are even less likely to be a primary driver for the acquisition.
From a systems standpoint, an acquiring firm venturing into a new or complementary sector business will often encounter a set of front office, mid-office, and back office systems with which it has relatively little expertise. Since the acquiring business is intending to harvest value from continued successful operations within the acquisition, the guiding post-close principle may be as simple as “don’t break it”. There may be a decision to put the standard IT integration playbook on hold in favor of “light touch” integration, with little to no systems integration or migration at deal close. Over time, as the acquiring firm gains confidence and familiarity within the acquired firm’s business operations and systems, integration of corporate and back office functions may begin in earnest. Whether a light touch integration or full integration approach is chosen, information technology staff from the acquiring entity should begin to work closely with the acquired IT staff as early in the process as possible, ideally starting with co-developed detailed integration plans during the sign-to-close period to the extent allowed by Hart-Scott-Rodino and similar legislation and then developing into a much closer working relationship moving forward from deal close.
One crucial planning tool, in terms of IT systems integration, is a high-level diagram of the entire combined entity’s systems landscape. The planning team should develop a time series of systems landscapes that illustrates not only which systems are appearing or disappearing over time on the landscape, but also how data flows between systems will change. It is important to visually reinforce any major intended changes to the systems landscape to as wide an audience as possible, as both sides will likely assume that “their” systems will be retained in the go-forward organization.
Summary Concepts and Actions
Ultimately, a firm with an acquisition growth model will need to write a new playbook that incorporates the acquisition of dissimilar businesses. The highlights of the new playbook need to include both systems and cultural aspects of the acquisition, including the following areas:
- Identify what’s new: With each new acquisition the integration team should plan on expanding the enumerated list of business capabilities within the playbook, as well as the set of systems associated with each capability.
- Draw a picture: Enterprise architects should develop a high-level diagram of the combined entity systems landscape and use this as a touchstone for discussions throughout the integration process. Enterprise architects should also develop more detailed technical models that include all systems and interfaces present in the new combined entity.
- Make a movie: Working with the wider integration team, identify all duplicative systems capabilities and build a time series of diagrams illustrating planned systems changes over time. The team should associate changes depicted on the diagram to specific integration projects.
Remembering the Goal
The technology integration team should always bear in mind that the goal of a successful integration is to enable an acquiring entity to realize the benefits of the M&A financial model as completely and as quickly as possible. The goal is not necessarily to standardize systems or processes across the new combined entity unless the financial model identifies systems or process standardization as a specific outcome required to realize planned financial benefits. In the case of the acquisition of a dissimilar business, this is less likely to be the case than it is with an acquisition of a similar firm due to the differing nature of the systems and processes used in daily operations. There are a multitude of decision points during a large-scale integration, and technology leadership should consciously return again and again to the objectives of the acquisition as key principles to guide these decisions.
About the Author Gregory Flay is an IT executive with over 20 years of technical and executive experience focusing on managing domestic and international M&A, building IT teams, and implementing transformational change. He actively pursues business impact through metrics-driven performance management, concentration on hard-dollar cost reduction and revenue-generation, and business problem resolution. Greg has held a variety of executive and consulting roles with Dynegy, NRG Energy, and Green Mountain Energy Company.