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Technology's Role in M&A Success

by Blake Sellers

While mergers and acquisitions (M&A) activity is down due to recent economic conditions, some companies continue to take advantage of "bargains," to boost profits through increased operating efficiencies or to add complementary product or service lines. While many plans look good on paper, success is often enabled in the technology trenches. After the investment bankers and lawyers have gone home with their transaction fees, the "flashy" part of the M&A deal is over and others must roll up their sleeves, and make it work in order to capture the efficiencies.

When you read about M&A activity, it's most often the "pre-deal" goings-on that get all the press. In most cases, CEOs pay a premium for what they are getting because it's required to close the deal and they believe the acquisition is worth it. After the transaction is closed, you start to hear phrases like "merger integration" and "synergy capture." These phrases describe the expected financial gains resulting from the two entities coming together. This is where the rubber starts to meet the road, because technology integration is often vital to gaining the operating efficiencies or market synergies that were contemplated before the deal started. As an example, we recently assisted a health care client that provides diagnostic imaging services with merger integration issues. In this situation, the integration approach taken for "customer-facing" processes and systems (e.g. patient services) was very different from the approach for "back-office" processes and systems such as finance, accounting and payroll.

A successful post-acquisition integration plan addresses four key components: people, process, data and technology; technology usually serves as the foundation of this plan. From the back-office perspective, the key goals are usually centered on reduced operating costs and/or increased control. So, issues like centralization and shared services often come into play for functions like finance and accounting, HR and procurement. For public companies, Sarbanes-Oxley requirements must also be considered.

For "front-office" or customer-facing processes, the objectives are more typically focused on increasing market share and/or improving the customer's experience. Once again, the integration projects will have to address issues that include people, processes, data and technology but for these processes shared services or centralization are less likely to be considered. For these areas, defining and implementing a set of common processes and systems on a decentralized basis is often the more appropriate approach. Without these types of changes, it's almost impossible to manage the combined company on a consistent basis.

With respect to best practices for executing a technology integration plan, we can learn a great deal from companies like Cisco and GE because they do this all the time. However, they have the luxury of having M&A teams that are dedicated to merger integration. They also are usually acquiring much smaller firms. When you don't have an experienced team, or the merger involves two companies that are more equal in size, we recommend setting up an integration steering committee and a program management office (PMO).

The integration steering committee should be composed of company executives such as the CFO, the VP of HR, VP of Operations, etc. This group provides the overall governance function, establishes the vision, and makes most of the strategic decisions. Once this group is established, you are set to lead from the top down, so the next step is to set-up the PMO.

The PMO does all of the master planning, organization and provides hands-on expertise to the individual projects that make up the overall integration program. It defines the scope of work, the time lines, work plans, organizational charts and the sequence of the projects. Ideally, many of the firm's own managers will participate in the PMO or manage individual projects that are overseen by the PMO. If a company does not have the internal expertise to create a PMO, this function can be outsourced to experienced contractors or consultants.

In summary, successful merger integration does not happen by accident. It requires a proactive approach to defining and managing a series of integration projects, and each of these projects must address multiple aspects, including people, process, data and technology. If defined and managed properly, these integration projects can make a significant difference towards capturing true synergies from the merger.