Common M&A Challenges and How to Overcome Them
Effective integration is essential, as getting a merger right can yield valuable results.
In years past, the process of integrating the IT operations of two companies involved in a merger or acquisition was relatively simple. Not anymore.
As IT environments have gotten more complex — involving traditional three-tier data center architectures, new technologies such as hyperconverged infrastructure and cloud resources — integrating operations in a merger has become far more complicated. But effective IT integration is necessary to accomplish the goals of many M&A deals: namely, adding new customers and capabilities.
A Changing Landscape
Even as the process of merging and acquiring companies has grown more complex in recent years, activity has remained robust. According to the “Corporate M&A Report 2020” from Bain& Company, 2019 saw $3.4 trillion in global strategic M&A deal value — on par with the year before.
Bain & Company notes that IT has become an increasingly important component of M&A deals and one that often throws up unexpected roadblocks. “In a tech-enabled world, deal scrutiny is expanding to include issues such as data ownership and access to critical technology, often prompted by national interests, as well as the impact on future competition,” the authors of the report write. “The time, complexity and the resources to get deals over the regulatory hurdle are rising — it will take longer than you think and cost more than you expect.”
All of this was true even before the coronavirus crisis brought many businesses to something of a standstill in the early part of 2020. The impact of this crisis on the M&A landscape is still unknown, but it will at the very least be another complicating factor. According to Forbes, M&A levels in the U.S. dropped by more than half in the first quarter of 2020 compared with the previous year, and even most of the completed transactions were entered into before the crisis became a worldwide problem. With many businesses facing difficult financial situations, this dip could give way to a significant increase in activity in the near future. Still, those deals are likely to be fraught with additional hurdles. Negotiations and due diligence will take longer, Forbes predicts, and it will be more difficult for buyers to get to know sellers’ management teams and key employees, given limits on travel and physical proximity.
The Challenge of Increasing Complexity
In any case, the M&A process in 2020 and beyond is far more complicated than it was even just a few years ago, with organizations facing serious challenges for both business operations and technology integration. A decade ago, IT leaders could mostly focus on getting disparate data centers to work together. Today, with sprawling technology environments, there’s a lot more to worry about. The challenges and opportunities of every M&A deal are, of course, unique, making it that much more difficult for IT and business leaders to chart the correct course.
For one, nearly all organizations have come to recognize the growing importance of data — not only its business value but also the need to meet requirements around privacy, security and compliance — to a successful M&A deal. Information must be standardized for successful data integration efforts, with a focus on both quality and cost controls.
Another challenge is the increasing complexity of most large companies’ IT environments, which often include resources from multiple cloud vendors. Ironically, these complex environments sprouted up as companies sought out simplicity. To improve efficiency, cut costs and decrease management burdens, savvy IT leaders have moved their organizations’ workloads to a number of different settings, with many organizations embracing a multicloud strategy. While there are obvious benefits to such an approach, a sprawling multicloud environment can make it extraordinarily difficult to integrate systems and data from two different companies. This is especially true if one or both of the parties’ environments are disorganized, lacking an exhaustive inventory of company data, applications and infrastructure.
The loss of employees during a merger or acquisition is often accompanied by a devastating loss of institutional knowledge, and this can create particular challenges around IT integration — especially if organizations are still running legacy systems. Other challenges include the merging of disparate business processes, regulatory landscapes that can change with geographic moves, and rightsizing new environments to meet business needs without either introducing wasteful spending or forcing employees to resort to shadow IT to get their jobs done. Even after the dust of an M&A deal settles, businesses must tackle the challenges that come with managing distributed workforces and identifying essential employees.
The Value of Getting It Right
A number of common mistakes have historically plagued M&A deals. For instance, insufficient due diligence can lead to unwelcome surprises popping up after the conclusion of a deal. And insufficient involvement of IT departments early in the process can make it nearly impossible for tech leaders to conduct a current-state analysis of each environment and build a roadmap to a desired future state.
By contrast, getting a merger right can yield incredibly valuable results. And while today’s environment is particularly challenging, there are also more tools than ever to help smooth the path for IT departments to successfully integrate their environments and support the business. Cloud platforms allow IT shops to increasingly leverage the help of external partners, and hosting merged resources in a public cloud environment during the transition can take some short-term pressure off integration teams. Also, the ability to infuse automation (in instances where there is a clear purpose and ROI) can help streamline common and repeatable processes, bringing about greater operational efficiencies — and, in some cases, cost savings.
When organizations take the right steps to integrate their business operations, human capital and IT systems, they can improve efficiency, reduce costs, use technology more productively, spur innovation and even leverage the merger process as a change point for the entire organization. But to attain these outcomes, stakeholders must carefully navigate the process and embrace a mix of services and solutions that will give them the best chance for success.
Want to learn more about how to navigate complex M&A deals? Read the white paper “A Smoother Path Toward IT Success in Mergers and Acquisitions” from CDW.