IT not only drives synergies across these back and front office functions but also can be a driver of innovation in transactions.
Only 38% of corporates and 22% of private equity placed a significant focus on IT as part of their approach to transactions. This could leave executives negotiating in the dark over the potential costs and synergies for the critical assets involved in M&A.
When we looked at the major business functions in more detail, respondents placed greater scrutiny on the finance, operations and sales and marketing functions than IT during the due diligence process.
IT and back-office function
IT underpins all business functions and supports day-to-day operations yet companies underestimate the potential for IT to affect the realization of synergies or deal success. "IT is changing how companies carry out their business, how they deliver goods and how they provide services," says Tony Qui, Partner and leader for IT transaction services at Ernst & Young LLP. "The biggest issues we see relate to overall information management. This is where companies will see the highest impact on users."
This clearly crosses multiple business functions as it affects managements' ability to do financial statements, bill customers across different regions, oversee branding guidelines or manage websites. "Even something as simple as email presents questions — do you continue to use the target company's email address? Can you access the same address book? These are all real-life examples of where things can go wrong."
When expanding into emerging markets such as Russia and China, for example, IT can also help enable success as it gives you the ability to monitor and to support regulatory compliance.
How much emphasis/focus is put on IT as part of your approach to transactions?
IT and revenue generation
A company's sales and marketing capabilities are often targeted for achieving synergies early in an integration process. While integrating information systems may not be achievable straight away, all the information related to clients needs to be accessible to the sales and customer relationship management (CRM) staff of the combined company from day one.
When asked which functions receive the most attention during due diligence, 79% respondents point to the finance department. A company's IT and finance functions are largely inseparable.
This means the management information needed to run the business is affected. Finance teams are heavily reliant upon information systems to invoice customers, pay suppliers, monitor and accurately project their company's future cash flow.
IT and supply chains
Business operations and supply chains are closely inspected during due diligence by over half of our respondents. Information systems can prove critical for business operations at every stage of supply-chain management from raw material procurement to the distribution of finished products.
IT can improve inventory management and quality assurance and link production planning to sales and distribution. Management information systems can enhance logistical operations, helping to optimize cost and time efficiencies through improved warehousing, depot routing and the scheduling of deliveries.
IT and human resources
Merging company cultures, retaining talented staff and motivating new employees are notoriously difficult to get right. As such, IT is crucial in ensuring that human resources is able to communicate progress of the integration effectively to employees, train workers in new areas where needed and manage the most basic functions.
On a wider level, enterprise resource planning software binds almost all business functions, from data management to payroll and project management and can only work when given access to all available data.
How closely are the following areas/departments examined during due diligence in your experience?
“We think of IT related problems in the context of operational synergies, which are always difficult to capture. In our last acquisition, the business processes and operations were largely the same for the merging parties, but to get them in a common frame, on the same IT systems, was not easy.”
— CIO, Dutch telecommunications provider
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