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Why tech due diligence provides the necessary edge for making M&As succeed

6 December 2016

Completion of mergers or acquisitions rarely happen quickly, given the wealth of due diligence that needs to take place before possible deals are agreed. The potential for entering new markets, cost cuttings via shared supply chains or increased market share, I am sure, will all be meticulously reviewed and weighed throughout the process. However, what is often missing from all these discussions is the role that technology can and will play in the early stages and overall success of any merger or acquisition.

In fact, a recent survey by Ernst & Young revealed that only 38% of corporate respondents said they put a significant emphasis on IT as part of their approach to transactions.

The failed integration of technology and operations can prove to be the stumbling block on the way to success for many mergers. An easy way to solve this is to ensure that the key operating staff are heavily included in discussions throughout the procedure.

Here are some of the things you should be considering before, during and after the completion of a deal from a tech standpoint.

Before

Is your own infrastructure up to scratch? Firms should first and foremost get their own house in order. If you’re looking to acquire a new business, back-office data migration is inevitable so having a flexible system which has a standardised migration procedure will provide both time and cost savings throughout the process.

Furthermore, the significant savings from a modern, automated system not only furnish a company with a slicker offering to customers but can also provide robust bidding power when entering into negotiations.

Secondly, make sure you have undertaken a thorough due diligence process into the potential partner firm’s systems. Again, it’s imperative that operations managers are involved in these early stages so that they can assess how well the current systems can be integrated and any costs that may be associated with this. It will also allow you to evaluate which systems to retain and what data should/shouldn’t be migrated.

Rather than trying to bring all parties on to one inherited legacy system, it may be that an investment into a new modernised tech system for both parties is necessary. Where this is the case, companies should be looking to use software which allows back office migration to happen quickly and painlessly and which allows all parties to be operating on the same system as quickly as possible.

During

The reasoning and ambitions behind undertaking the M&A activity must also be clear. Are you looking to expand into new regions or markets? If so, again you need to consider that the tech you are inheriting or currently working with is set up to deal with this – does it operate across a multi lingual, multi time-zone and multi domiciled environment? Without these building blocks in place any deal with these core ambitions at heart is likely to either be unsuccessful in the long-term, or companies will be facing additional financial cost down the line which may not have been factored in to initial budgets. The Ernst & Young survey also stated that 47% of respondents said in retrospect that more detailed IT due diligence could have prevented value erosion .

If integrating the back-office is going to take a significant amount of time, firms can consider a temporary digital overplay which can be created quickly to sit above both companies, allowing them to operate under one system while the longer-term data migration takes place.

After

This is where, if companies have included the relevant operations staff in the early discussions, you should be able to hit the ground running, either on a temporary system which sits across the current infrastructure, or by beginning the back-data integration process straight away.

Bringing supply chains, product ranges, customer service and accounting systems into one automated system allows you to immediately capture the financial benefits and reasoning behind the merger; such as access to new markets and a greater customer base.
Data migration will likely be the biggest obstacle you will face but most software firms should now be able to provide a data dump inside a 24-hour window and, once the initial data mapping exercise is complete, the rest of the process should run reliably and to a predictable time scale.

By involving the key operating staff in the due diligence process from the outset of any discussions, firms will be able to capture the shared efficiency and financial benefits from a deal as quickly as possible, have a better overall understanding of a partner firm’s capabilities and synergies, ensure the ambitions of the company can realistically be catered for and factor any additional software costs into budgets.

About the author

Tony Collins

Tony Collins

Business Development Manager EMEA

Tony has over 30 years of experience in the financial services and IT markets, specialising in financial sector solutions. He has extensive experience in designing and developing innovative business propositions for financial services organisations, and brings an in depth knowledge of the market and how it operates.

Based in our London office, Tony is responsible for identifying and developing new business opportunities in the EMEA region.