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Why IT integration and monitoring should be a strategic priority for any M&A deal
Mergers and acquisitions (M&A) are a big deal. Last year, nearly $3.9 trillion was spent on them, according to the Institute for Mergers, Acquisitions and Alliances (IMAA).
They shape and reshape markets all over the world, sending shares soaring or crashing while customers marvel over new services or leave in their droves. IT is the foundation of any modern digital business, so it’s disappointing to see it continue to be sidelined or ignored in many M&A deals.
In reality, the most effective dealmakers will usually be the ones prioritizing IT from the start. This means having the right operations and monitoring tools in place (ITOM) — those that can provide visibility and control into both legacy and modern digital infrastructure from a single pane of glass. Anything less could turn your M&A ambitions into a massive failure.
IT is key
Boardrooms may sometimes forget they exist but IT leaders know that it’s the servers, networks, applications and clouds that lie at the heart of any successful modern enterprise. So it naturally follows that integrating the often complex heterogeneous systems of buy- and sell-side organizations should be a priority for any M&A deal. Yet as Bain & Company argues, IT “is often identified as a root cause of failed M&A and divestiture efforts due to poor IT platform and organization integration, inefficient due diligence and failure of IT to enable business synergies.” Visibility of both firms’ IT assets is key to success, and time is a precious commodity. According to PwC, successful integration must happen quickly, with the period between a deal being announced and closing, as well as the first 100 days post-close, absolutely crucial. Deals frequently lose momentum six months to a year after closing, and yet, the consulting giant warns, IT often takes the longest time to integrate. Successful deal makers not only integrate IT faster but also deeper. Over half (54%) analyzed by PwC said they’d fully integrated IT, versus 27% of unsuccessful deal makers.
IT is the “highest area of one-time costs” and the key enabler for most M&A synergies, according to the report. That’s why it’s disappointing that just half of European firms said they involve IT in the transaction process, versus 80% for finance. A similar number (47%) said that better IT due diligence could in hindsight have prevented value erosion.
Compounding the challenges of merging IT systems is the fact that one or both of the organizations involved may be running a significant amount of legacy infrastructure, alongside modern digital platforms. Legacy is especially common in operational technology environments where equipment is expensive, replacement cycles can be decades long and mission-critical kit is not easy to swap out. But it’s also true of operating systems. The UK’s NHS, for example, admitted that nearly 5% of its machines were still running Windows XP when the infamous WannaCry ransomware struck. It will only finish migrating all of them by 2020. Something like 70% of the world’s financial transactions are said to still be powered by mainframes, despite the performance advantages of modern x86 systems.
Sometimes, as McKinsey explains, it will make sense to keep a target company’s legacy system in place, as integration may prove too disruptive. “A financial institution’s CRM systems, for example, may be closely tied to the new markets and customer bases that represent a significant chunk of a deal’s value,” it argues. However, effective decision making either way can only be achieved through 100% visibility.
Time to cut tool sprawl
ITOM platforms offer a solution. They enable buy-side firms to audit critical IT assets of both firms, not only to ensure a smooth and speedy integration roadmap and quick time-toinnovation post acquisition, but also that the target firm is valued correctly. However, legacy approaches to ITOM provide a further barrier to M&A success.
In many organizations, the function is still seen as a utility rather than a value driver, while legacy metrics focus on the wrong things: availability rather than performance and UX. Departmental siloes further entrench these approaches and lead to tool sprawl. Some estimates claim two-thirds (65%) of firms use 10 or more monitoring tools. As Gartner explains, this results in unnecessary extra costs, but also “exacerbated silo-ization of IT” and “elongation of MTTR” — both of which can impact efforts to smooth the M&A process. Tool sprawl on both the buy and sell side can double the size of the problem.
A better way forward
The answer is to consolidate ITOM onto a single platform that can provide visibility and monitoring of legacy and digital infrastructure across both M&A parties. Through a single pane of glass, IT leaders can make more effective decisions: mapping synergies, monitoring service quality, carrying out due diligence; and planning post-acquisition integration to support successful deal making.
Gartner claims that less than 15% of organizations will implement holistic monitoring of this sort by 2021. This will not only leave integration teams in the dark and jeopardize the success of M&A deals, but could put an estimated $255bn worth of investments in cloud-based solutions at risk. It’s time to find a better, more unified approach to IT monitoring.
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