Identify the best technology fit in M&A

Why ‘technology fit’ is important?

In a M&A deal, many of the risks are identified during the due diligence. These risks extend from cultural mismatch to financial risks. One critical area where due diligence is required is in assessing the technology fit of the two entities.
M&A is done to pursue organizational growth, customer acquisition or economies of scale. The heart of all these strategies lies in the successful integration of enterprise data systems across the two organizations. When technology fit is given less priority, it can create costly and time consuming challenges. These challenges can hinder the new formed entity in reaching its investment return.
To achieve M&A success, the IT leadership needs to be involved earlier in the M&A journey.

Technology Due Diligence

Due Diligence is a vital phase in the M&A lifecycle. Due Diligence is more focused on securing critical elements of finance, equity and support. Hence enough time is not allocated to assess the fit of enterprise technology systems of two entities.
During the Due Diligence, the target entity shares a great deal of business critical information with the acquirer. It is critical to involve technology in discussions from an early stage. This would benefit the business at a longer run.

Mapping the new enterprise architecture

When the technology leadership is involved earlier, there is a greater likelihood of maintaining ‘business as usual’ immediately post acquisition. The IT leadership support in minimizing systems downtime and ensuring customer service continuity. The business team can dedicate more time towards customers, employees and investors.
Technology teams start planning during the early stages of due diligence process to cover an audit of both company’s systems. This is done to understand the assets, demands and skills available in each entity. The audit also needs to identify functions where the resources are duplicated. If the integration strategy is to combine the two businesses fully, then the next step should be to create an enterprise infrastructure map for the newly formed organization. The target end planning would require sharing customer databases, leveraging economies of scale and integrating CRM systems of the two entities.
In the areas where duplications exists, the IT leadership needs to decide whether to unify operations onto a single system or create integration paths to address issues in the short term. This becomes relevant with the compatibility of database run systems that support customer service, core business operations and financial management. A cost benefit analysis needs to be done for each and every item within the infrastructure. This is an intensive exercise that will provide a detailed plan on IT integration costs, efforts and timeline.

Training and Support

During the integration, the change management team is assigned to take care of staff moves, roles realignment, redundancies and cultural shifts. Similarly there needs to be a team to manage change in the IT environment. This is because many companies report a period of confusion in the state of post merger integration. In this period of uncertainty and confusion, the technology leadership needs to actively set up solutions to address integration challenges. This can help organizations to embrace change more readily.
During the IT integration, there is a need to have right skillsets onboard to manage the integration of systems across entities from day one. Many organizations do not have the right integration experience in IT. They often treat integration as an another IT project. This is a dangerous approach and can give rise to major issues. The integration process tend to introduce new and different variables that most IT teams dont encounter on a regular basis. Hence an integration team with the right skillsets in IT can enable a seamless integration quickly. IT skills planning is an essential part of the change management. The newly formed IT support team should be trained on solutions whether it is migrated from the acquired business or installed into the new entity.
The end users needs to provided support on the resulting system. They should be provided training on how to enter data consistently and accurately. This is necessary for the newly formed entity to operate efficiently.

Data Security and GDPR

Data is a very vital commodity. Hence it is critical that it remains secure and accurate during the integration. Since the introduction of GDPR in 2018, certain aspects of data management is under scrutiny. Hence evaluation of data protection needs to be done during the due diligence process. The acquirer needs to validate whether personal data stored in the customer contact systems has consent for use post M&A. If the consent is not available, then the data loses its value.
There needs to be a change in assigned data controller. This needs to be communicated to impacted individuals in the database. There is a likelihood that read/write controls in the database needs to be managed. This is easier in an integrated environment where data sharing is created through database links rather than import/export activity. The import/export activity can expose data to security risk.

Planning for next steps

The IT leadership needs to map and control the secure transition of data between the systems. The systems needs to interoperate in the post merger environment. The interoperability needs to be achieved without disrupting the day to day operations.
Integration Platform as a service solutions can build a test environment that creates connections between existing business applications. These applications can exist outside of the live business operation. With links in place the database can be connected and tested. The organization operates in a live setting with data integration, management and update between new and existing sources. This maintains data integrity within the source database.
The solutions can flag inconsistencies across data in the same field across different systems. This is helpful in customer and finance databases. In these databases common fields containing different information result in customer service issues.

Final Takeaway

If technology due diligence is not effective then companies would incur high costs. This can lead to delay in realizing the full potential of the merged organization.