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IT as a driver of M&A success - To blend or to build - EY - Global

IT as a driver of M&A success

To blend or to build

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Decide your approach upfront to avoid costs and capture synergies.

During pre-deal planning, management needs to assess whether to build a new IT platform for the combined entity from scratch, or to integrate the systems of the target and the acquirer.

Such decisions are fundamental in making the deal work cost-effectively and in achieving projected synergies. This was the case for more than a quarter of respondents (26%) who say IT issues often block post‑-transaction objectives.

“We have a very diverse portfolio of brands and we are adding to it. Data uniformity and systems similarity are often the most difficult post-deal objectives to achieve. These are the things that need to be considered even when identifying targets.”

— CIO, global retail business

Speaking a common language

Companies can only integrate systems when there is a clear understanding of how existing platforms work, how they are designed and how compatible they are. Selecting and using common applications, project management tools, processes and templates can give a company a head start. Standardization should mean it is quicker and easier to integrate any acquired company's data and systems.

Acquisitive companies could take a leaf out of US technology multinational Oracle's book over how to build for change. Between 1999 and 2004, the company consolidated more than 70 individual systems in one ERP system, saving the company US$1b a year. This created a platform that supported an ambitious acquisition agenda of more than 50 deals from 2005 to 2009.

Oracle is now able to integrate new acquisitions within six months, illustrating that having the right blend or build solution up-front is crucial.

New platforms

New platforms can play a role in any integration, especially where two companies have been using drastically different systems prior to the merger.

"This is not just the case for mega mergers, but also for the smaller transactions — the segments of acquired businesses that need to be integrated with your platforms," says Christopher Schmitz, Partner at Ernst & Young GmbH. "For example, a major European bank integrated the corporate clients' business from a large competitor. It was unable to integrate the acquired business onto their existing platform. As an alternative, they rolled out a new platform which will serve as a blueprint for rolling out client business in all their international hubs."

Companies are already looking to emerging platforms, such as the cloud or virtualized data centers that help shift weight to shared bases. Data-heavy firms are making this switch without the stimulus of a transaction environment. For companies going through change, this emerging technology is worth serious consideration.

In your experience, how often do IT issues prevent you from achieving your post-transaction objectives?

In your experience, how often do IT issues prevent you from achieving your post-transaction objectives?

 Case study: Siam City Bank                                          

Case study: Siam City Bank

Siam City Bank, Thailand's seventh-largest commercial bank, went through this process when it acquired Thanachart Bank. Siam City Bank had more than 100 physical servers. An assortment of data storage hardware and networks made managing the servers difficult, especially as it tried to bring its new partner into the fold.

By switching its data center infrastructure to a virtualized environment, the company reduced its server count to 10, cut management costs and could develop applications more quickly to use across both banks.

"With server provisioning times reduced from weeks to hours, we were able to quickly give the business access to new resources to support new applications; this was critically important during the process of merging with Thanachart Bank," said Rungsimont Pongsamart, First Vice President of Siam City Bank.

"Our developers can now easily access test and development environments and we spend considerably less time sourcing and configuring hardware resources to meet their needs."

As a side effect, both banks now have a more robust disaster recovery set-up in place, with secondary servers carrying a carbon copy of both banks' essential data and applications.

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