Management

Want to Make Your Firm's M&A a Success? Prioritize IT

Mergers and acquisitions are challenging, but a strategic approach to IT gives firms a fighting chance.

The financial services sector continues a transformation that began in the late 2000s, riding an accelerating wave of merger and acquisition activity that reached record highs in 2015. Those seeking to fast-track growth or cut costs see M&A deals as their best bet for achieving those objectives.

But these transactions don’t come without significant IT challenges. Harvard Business Review experts estimate that 70 percent to 90 percent of all transactions fail. A study by KPMG, meanwhile, finds that 83 percent of such undertakings never deliver predicted returns on shareholder investments. Despite these figures, financial firms remain extremely active in mergers and acquisitions.

Why? A meticulously planned and executed deal between parties with the right synergies and resources can deliver tremendous returns. There’s no single formula for guaranteeing payoff, but for the firms that get it right, the rewards are well worth the risks.

IT at the Table on Day 1

Firms that succeed in M&As make IT a priority. Neglected IT issues are responsible for one-third of acquisition failures, according to a study by global management consulting firm A.T. Kearney. Why are they neglected? Deal-makers don’t invite CIOs to be part of the transaction process, providing them with details only after they’ve signed contracts.

In fact, according to public accounting firm Ernst & Young, only about half of IT managers are included in the transaction process. This is a huge mistake, as IT services delivery drives every department and function of a business. CIOs should be included in the M&A process from the first day, so they can work with other departments to understand a deal’s objectives and the links between business functions and IT systems.

A 2015 report by Boston Consulting Group cites communications as the weakest link in all M&A phases. The more layers that project directives have to penetrate, the less accurate they’ll be. Only when they’re part of the entire transaction can CIOs get and provide feedback on IT systems, deliverables, time frame and costs, and then communicate tasks to various IT teams to carry out.

Without this big-picture understanding, CIOs can’t set or manage business expectations for the IT work needed for success. Too often, transaction executives make overly optimistic cost and timeline projections, setting IT departments up to fail when they begin post-merger work.

This work includes:

Integrating people and cultures: It’s difficult to ensure that employees from two different cultures will mesh. Without equal opportunity to work with key department heads, IT staff will operate in the dark about their role in integrating users across both organizations.

Unifying business processes: Though much depends on how unified the two parties will be — whether it’s a full-fledged merger or a deal in which an acquired party continues to operate with some independence — an IT team has to work with other business leaders to document existing processes. They determine which processes best serve the new entity so they can unify workflows and which may need to be completely re-engineered.

Cataloguing resources: To develop a new services portfolio, IT staff will review the technology services of both organizations, determine what they’ll offer the organization going forward and develop a new catalog of resources that details what’s needed to deliver each service.