How chief information officers can drive more value in transactions

CIOs can use the M&A and divestitures lifecycle to help transform the business and drive long-term value.

In brief

• CIOs who remain involved in a transaction through the post-close stage can make the deal more successful, according to the 2024 EY CIO Sentiment Survey
• Talent is often overlooked in a transaction; make sure the right IT leadership team is in place to establish a successful IT structure and talent group
• EY teams have worked with CIOs to help leverage the transformational opportunities of a transaction

Corporate mergers and acquisitions (M&A) and divestitures present unique challenges to a company’s technology team, but they are also a great opportunity for forward-thinking chief information officers (CIO) to help transform the business, as the 2024 EY CIO Sentiment Survey shows.

In today’s corporate landscape, integrating multiple data structures and creating technology scalability are just two of the unique transaction challenges. Yet, they are also prime opportunities for business transformation, technology optimization and reduction of technical debt.

“When organizations are already spending dollars on integrating or separating, it’s a great time to think through changes that can create more value in the long term,” says Matt Bartell, EY-Parthenon Americas Strategy and Transactions Technology and AI Leader.

The survey captures insights from 500 CIOs highlighting how ones with extensive experience approach transactions. The survey also suggests that there is an expected surge of more than 20% in deal activity compared to current levels, and while most CIOs have experience being involved in multiple transactions, there is still a significant desire for better outcomes.

Only 32% of the surveyed CIOs claimed to significantly meet their deal objectives such as IT synergy targets, on-time deal close, post-close IT TSA exit and operational cost stabilization. One potential reason: most CIOs and technology experts are typically involved in the early stages of a transaction. The survey suggests that the most successful CIOs maintain higher engagement across the deal lifecycle, stay focused on solving the most critical challenges, and use the best available tools and resources.

In fact, CIO engagement and involvement post-close is crucial for achieving successful integration, enhancement and transformation of IT operations as part of a transaction. EY professionals offered some practical steps CIOs can take to prepare for challenges, stay engaged and make the most of their influence throughout a deal’s lifecycle.

1. Stay active in the big-picture decisions about the transaction.

According to the sentiment survey, 73% of the CIOs are engaged in the diligence phase, but the number drops to 54% engagement during sign-to-close phase. By the time the post-close phase has reached, only 37% of CIOs are engaged. As a transaction unfolds, it’s common for CIOs to step away from governance forums and other planning teams to concentrate on making sure the technology transition is smooth — but there are advantages to remaining involved. “Stay active in forums and continue to engage business counterparts throughout the organization,” Bartell says. “It’s a great way to help guide decision-making and ensure you maintain some influence.” It is also an opportunity for CIOs to shape the IT transaction agenda, identify and resolve IT risks at early stages, and keep the teams focused on IT objectives.

2. Make sure the right IT leadership team is in place.

With the many changes inherent in an M&A transaction, talent is often overlooked — but it’s a key piece of the puzzle, says Mazen Baroudi, EY Americas Technology Transformation Leader. The transaction offers an opportunity to make sure the IT team has the right structure and talent with a more meaningful representation across workstreams. “Make sure you have a leadership team in place that can make the right decisions during the transaction and bring the right folks over to keep running IT,” says Baroudi.

Baroudi urges CIOs to anticipate the needs of the new organization. A larger enterprise will have different needs than a smaller company. “Try to create the organization and team that’s right for the size and shape of the new entity,” Baroudi says.

3. Create a tech stack landing zone to smooth the transition.

Blending systems and processes can be a formidable challenge as two companies merge. A tech stack landing zone — essentially a staging area — is a great way to simplify the process. The survey confirms that 78% of CIO leaders create landing zones. “There are two flavors of these landing zones,” says Baroudi. “One type is a cloud area that provides infrastructure to get a new company up and running as quickly as possible. The other approach is to stand up an ERP that’s a clone of what you have in the parent company, then import all the finance and transaction data from the acquired company.” Both arrangements help to accelerate integrations, especially in a scenario where a company is intending to perform serial acquisitions. “Setting up a landing zone in advance creates a turnkey solution and helps CIOs to achieve their goals,” says Sri Prabhakaran, Americas EY-Parthenon Deal Technology Leader.

4. Optimize contractual terms with vendors and suppliers.

Technology is typically one of the costliest components of a transaction. While the IT industry is focused on reducing those costs with, for example, the move toward cloud computing, there’s still considerable expense associated with data hosting and software purchases or subscriptions. CIOs need to be proactive about putting transaction-specific contractual terms with key vendors and suppliers in place to maximize the value of the transaction. However, less than 45% of the respondents say they include such terms and clauses. “If there’s a significant increase or reduction in the volume of licenses required after an integration or separation, that can trigger different commercial thresholds in contracts,” says Bartell. Change-of-control terminology and transition service agreements (TSAs) can also be tripping points. “In their contractual terms, technology vendors often limit the ability of organizations to offer TSAs. It’s advantageous for CIOs to anticipate all these complications so they can make provisions ahead of time,” says Baroudi.

5. Follow through after closing to help improve business processes.

Staying the course after the close to support the expected business outcomes can add considerable value. That’s because the transaction is an opportunity to rethink the way work gets done in an enterprise. “Your review could yield significant improvements in processes or introduce new technology that can automate or speed up time-consuming tasks,” says Baroudi. “The CIO plays a critical role post-close in facilitating and enabling the transformation of the way business gets done. They are the link between the technology landscape and the outcomes that need to be achieved.” During a merger or integration, CIOs may be required to enhance business processes, enabled by technology, while post large separations, CIOs have the opportunity to reimagine operations and reduce technical debt.

6. Introduce generative AI to help with data management and analysis.

Generative AI (GenAI) is touching everything, including M&A. According to the survey, Data Analytics was the top pick for highest impact, with 43% of the CIO respondents foreseeing the adoption of AI and GenAI enhancing the transaction process for cleaner and faster carve-outs and integrations. Contracts review and negotiations was one of the most popular second picks, with 50% of the CIOs recognizing its importance. Right now, GenAI is poised to optimize processes and speed up transactions, says Baroudi. “In a deal, speed is of the essence. If you have the data and contracts within a database, you could use GenAI to query that database and get the information you need. It’s a great opportunity for humans to get assistance that can give them information and synthesize it more quickly than ever before,” says Baroudi. GenAI can also help analyze cyber threats to make sure the IT stack is ready for post-merger transformation.

GenAI as a transformative post-transaction tool

Even after a transaction is closed, there are often many data problems to address, from document and data transformation to sorting out temporary agreements. “GenAI can play a role in looking at these documents and it can also help come up with new contracts,” says Prabhakaran. Still, he stresses the importance of human oversight. “Companies should use GenAI as a catalyst to get the transition done quickly, then use people, assisted by GenAI, to carry out the transformation.”

GenAI can speed up transactions, making room for more innovations to come. CIOs can take advantage of transaction scenarios to shine as leaders who pioneer new technologies and uncover new process efficiencies.

“There’s an opportunity here for CIOs to establish themselves as digital leaders around the topic of AI and influence their counterparts in supply chain and other areas,” says Bartell. “If they stay engaged throughout the deal lifecycle, they have a chance to lead that agenda.”

Thank you to our contributing EY-Parthenon authors: Principals Go Fujisaki, Ayleen V Lau and Stacy Scott, as well as Senior Director Akshay Nair.