Avoid These Five Pitfalls of IT Integration
Why IT Leaders Are Essential from Day 1 in M&A Deals
By John Sinkus, Senior Advisor, M&A Leadership Council
It’s well known that M&A deals are more likely to succeed if the executive leadership is engaged in the entire process from beginning to end. This means that multiple members of the C-suite are actively involved in the whole deal lifecycle.
But what about IT? Research shows that while companies are getting better about including IT leaders, these personnel are often brought into deals late in the process. However, it is critical for CIO’s and IT leaders to get a place at the M&A deal table as early as possible. After all, IT is often the area of highest integration cost and greatest inter-dependencies with other business functions. Addressing IT early in the M&A process will help your organization avoid these five pitfalls.
#1. Unpleasant Surprises
Why is IT integration often so much more expensive than anticipated? Organizations often fail to adequately address IT during the due diligence process, leaving them vulnerable to costly surprises down the road. for example, say that the Buyer and the Target us incompatible systems for a specific business function, but this issue isn’t identified during due diligence. The result? Unanticipated and costly incompatibility issues that may carry quite a high price tag. This system incompatibility is among the most common M&A integration challenges, but preventing this surprise could be as easy as including IT leaders as early in the process as possible.
#2. Confusion and Chaos on Day 1
“Shared” IT infrastructure can be a critical Day 1 requirement (and often is) because IT provides the underpinning for virtually every aspect of business, from basics like voicemail and email, to more complex items like payroll and order fulfillment. Appropriately setting up such a complex infrastructure takes not only resources, but also time. The earlier your IT leaders are a part of the planning process, the more likely they are to have everything ready for Day 1, ensuring that employees won’t face myriad technological issues that hinder their ability to do their jobs.
#3. Delays in Winding Down TSA’s
M&A deals often place the Target’s IT department in a new role as service providers to the Buyer. These arrangements are typically governed by a Transition Services Agreement (TSA) that outlines IT services to be provided as well as the cost of those services and a timeline for transitioning IT to the Buyer’s responsibility. Usually a TSA includes penalties for exceeding the deadline for transition, providing yet another incentive to finish on time. But if IT isn’t included early enough, it will be even more difficult to meet TSA deadlines, potentially resulting in additional costs for the Buyer.
#4. Data Disasters
Data migration can be very time consuming and is often quite expensive. Consider the vast volume of data that your organization already collects. Now imagine suddenly doubling that volume–while maintaining the quality, accessibility and security of the data. That’s no small feat. Give your IT as much time as possible not only for the task of data migration and integration, but also for the up-front work of establishing data governance, processes and procedures.
#5. Deferred Synergy Capture
IT can be a source of significant synergies, for instance through eliminating inefficiencies that come from redundancies or over-investment in low-utility solutions. These synergies aren’t necessarily realized once the new business reaches steady state. They require IT rationalization–a step most organizations never address. Bringing IT leaders into M&A planning as soon as possible will hep them to identify potential synergies and chart a path to achieving those synergies, while giving them adequate time to execute the necessary steps to achievement.
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FAQ
1. Why is it important to involve IT leaders early in the M&A process?
Answer: Involving IT leaders early in the M&A process is crucial because IT integration often incurs the highest costs and has significant interdependencies with other business functions. Early involvement helps identify potential system incompatibilities, plan for shared IT infrastructure, and ensure smooth data migration. It also enables the identification of potential synergies and effective management of Transition Services Agreements (TSAs).
2. What are the potential pitfalls of not including IT early in the M&A process?
Answer: Not including IT early in the process can lead to several pitfalls, including:
- Unpleasant surprises: Costly system incompatibilities may arise, leading to unexpected expenses.
- Confusion on Day 1: Inadequate preparation of shared IT infrastructure can hinder business operations.
- Delays in winding down TSAs: Failing to meet TSA deadlines can result in additional costs.
- Data disasters: Poor data migration planning can compromise data quality and security.
- Deferred synergy capture: Missing opportunities for IT-driven synergies can prevent realizing efficiencies and cost savings.
3. How can early involvement of IT leaders prevent unpleasant surprises during M&A integration?
Answer: Early involvement of IT leaders allows for comprehensive due diligence, identifying system incompatibilities and other IT-related issues before they become costly problems. By addressing these issues early, organizations can plan and budget for necessary IT changes, avoiding unanticipated expenses and ensuring smoother integration.
4. What role do IT leaders play in ensuring a smooth Day 1 transition?
Answer: IT leaders play a critical role in setting up the shared IT infrastructure needed for Day 1 operations. This includes everything from basic communication systems like voicemail and email to complex systems like payroll and order fulfillment. Early involvement ensures they have sufficient time and resources to prepare, reducing the risk of technological issues that could disrupt business operations.
5. How does early IT involvement impact the management of Transition Services Agreements (TSAs)?
Answer: Early IT involvement helps in effectively planning and executing the transition outlined in TSAs. It ensures that IT services are transitioned to the Buyer on time, avoiding penalties associated with missed deadlines. Proper planning facilitated by early IT involvement helps meet TSA timelines and reduces additional costs for the Buyer.
