Which operational managers (or equivalent at your firm) do you typically involve in the transaction process?
50% of respondents said they typically involve IT in the transaction process compared to almost 80% for finance.
One of the most common mistakes encountered in an M&A transaction is not involving IT. IT may be brought in late in the process to assess risks, but with no understanding of the synergy case or what cost savings the deal should deliver.
“IT teams will focus on areas such as WAN connections or disaster recovery, but without asking key questions such as is the company growing into emerging markets? Is it looking for scalability? Is it enhancing its ability to share products?”
— Tony Qui, Partner, Ernst & Young LLP
These questions need to be addressed with the right internal stakeholders - senior management including members of the C-suite.
IT, alongside all other work streams, needs to understand the target company, the transaction rationale, the desired synergies and the challenges, as the acquirer understands them. Yet less than half of the overall respondents say they are fully informed about IT-related decisions being made as part of the transaction.
CIOs and decision-making
To achieve better results with a transaction, one option would be to elevate the CIO to the senior decision-making level. Their strategic input should be shared early on and throughout the M&A process to assess risks and synergies and begin focusing on the difficult areas of integration.
Additionally, there may be scope to broaden the career paths of CIOs to help diversify their experience and understanding of other business functions and the role IT needs to play in strategic transactions.
In retrospect, many respondents state that involving IT managers from the start is one of the best ways to ensure that time and cost estimates are realistic, and leaving them out almost certainly exposes a deal to losses.
Looking back on his company's most recent acquisition, the CFO of a consumer business based in Germany feels that inaccurate estimates were formed under tight time frames and without the right people.
"Typically, the finance and legal managers are involved in the transaction process, and they set out firm targets that the IT integration team has to meet," he says. "In my experience, the IT team finds that the integration costs exceed the estimates. There should be more time given to the IT team to understand the wider process and to identify potential road blocks."
One CIO explains that higher-than-expected costs were only part of the problem. "After our most recent deal, our offices were tasked with developing and implementing the new IT framework after the sale process had started. This should be done simultaneously. Everything should work on day one."
Involving IT managers at the early stages will allow for targets that are more accurate and could even speed up the process of realizing synergies.
“We were able to identify issues with certain SAP and ERP projects, so we knew in advance where there would be delays. We put in a margin to allow for this in our time and cost estimates.”
— CDO Finnish insurance company
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