Handling IT Challenges in 9 Common Merger & Acquisition Scenarios

Executing on a merger, acquisition, or divestiture can be the most challenging project a CIO and team will ever face. These types of deals can be a great way to unlock business value. But there’s a whole host of things that have to go on behind the scenes to make that happen. And much of that work falls on the shoulders of IT.

Challenges Common in Mergers | Binary Tree

Whether you’re in the throes of an org change or are just getting ready, here’s a list of things that can be a challenge from a technology perspective.

Bringing organizations together

In these types of deals, two or more organizations come together to meet stakeholder goals. The most common scenarios in this space are acquisitions, mergers of equals, and joint ventures. Each presents their own set of challenges, as we talk about below.

Scenario 1: Stand-alone acquisitions

From a technology perspective, this can be the simplest scenario. Here, you can often leave the acquired company’s products, processes, and platforms largely as they are. This is because the acquired business is significantly different enough and can keep working independently from the acquirer.

Challenge

Action items

Systems and processes

Make very limited or no changes to the acquired platform

Data

Create management interfaces for key corporate and admin systems

Assets

Over time, standardize your infrastructure to get economy of scale

Workforce

Make very limited or no staff changes

Set up processes for corporate IT oversight or control

Scenario 2: Absorption

Here, your goal is to merge an entire organization into the acquiring company’s platforms and processes. This scenario often comes up in horizontal acquisitions or when the acquirer is larger and has more mature systems than the target.

Challenge

Action items

Systems and processes

Fully migrate the target’s business into your processes and platforms

Data

Map and integrate all master data

Create a long-term archive of the closed entity’s finances

Assets

Negotiate contract extensions or terminations

Rationalize assets

Workforce

Transfer IT staff to the acquirer

Train all employees on new systems and processes

Scenario 3: Best of breed

This is where you look across merging orgs and cherry-pick the most desirable platforms and processes from each. It’s a good choice for scenarios in which both orgs have mature processes and similar operations.

Challenge

Action items

Systems and processes

Create a new platform with the best components from both orgs

Data

Map and integrate master data

Set up a long-term archive of the closed entity’s finances

Assets

Rationalize some assets

Review your sourcing strategy for software, assets, and vendors

Workforce

Transfer IT staff to the acquirer

Focus on motivation and retention

Reduce redundancies

Train all employees on any new processes or systems

Scenario 4: Merger of equals

In this scenario, two companies of similar size and maturity agree to join forces and work together as a single, new business entity. Because mergers of true equals are rare (no two companies are exactly alike), many organizations use this term more to keep an acquisition friendly and encourage a spirit of positivity and collaboration.

Challenge

Action items

Systems and processes

Create a new platform that supports the new business model

Cut over legacy systems where needed

Create interfaces and integrations

Data

Migrate master data to new data hierarchies

Map historical business data

Set up a long-term archive of past finances

Assets

Transfer contracts and software licenses to the new legal entity

Rationalize mid-term assets

Review your sourcing strategy for software, assets, and vendors

Workforce

Merge the IT organizations

Plan for long-term motivation and retention

Train all employees on any new processes or systems

Scenario 5: Joint venture or strategic alliance

This is where two or more companies come together to create a separate legal entity to help them achieve a mutually beneficial goal. For example, companies might create a joint venture to share IT or financial services.

Challenge

Action items

Systems and processes

Create a new platform that supports the new business model

Or copy one of the partner systems as is

Data

Segregate data exchange to follow competition laws

Assets

Transfer contracts and software licenses to the new entity

Leverage economies of scale with procurement

Workforce

Recruit or assign IT staff

Set up a process for oversight and audit

Breaking organizations apart

Separating out parts of an organization can be like trying to cut through a bowl of spaghetti. That’s because most business units depend in one way or another on their parent company—for everything from front-office sales to back-office services like IT, HR, and finance.

So when it comes to divestment scenarios, you need to think about the most efficient ways to cut ties while still meeting the needs of the divested entities. Here’s what this can mean from a technology perspective.

Scenario 6: Self-contained divestiture

In this scenario, you set up a divested entity with its own processes and platforms—everything it needs to work as a standalone business.

Challenge

Action items

Systems and processes

Create a stand-alone platform for the divested entity

Remove all references to the divested entity from parent systems

Data

Extract and transfer all data about the divestment, including historical business and finances

Assets

Transfer contracts and software licenses to the divested entity

Downsize parent contracts and services, as needed

Workforce

Transfer IT staff to the divested entity

Focus on motivation and retention

Deal with under-resourcing issues as needed

Scenario 7: Transitional divestiture

In this scenario, the divestiture happens more slowly. The organizations involved often set up a transition services agreement, where the divesting company agrees to give time-limited, transitional support to the acquirer.

Challenge

Action items

Systems and processes

Fully or partially migrate the divested business onto the acquirer’s platforms

Set up agreement or transition services

Remove all references to the divested business from the parent’s systems

Data

Follow competition laws by separating the acquirer’s post-deal business data in any transitional systems

Extract and transfer all data related to the divestment, including historical and financial data

Assets

Transfer contracts and software licenses to the divested entity

Downsize parent contracts and services, as needed

Workforce

Transfer IT staff to the divested entity

Focus on motivation and retention

Reduce redundancies

Scenario 8: Spin-off or carve-out

Also called a service-dependent transaction, this is where the divested company keeps relying on some business functions provided by the parent company (like IT, HR, or finance).

Challenge

Action items

Systems and processes

Create a separate entity for the divested business within the parent’s platform

Set up agreement or transition services

Data

Extract and transfer all data related to the divestment, including historical business and finances

Assets

Update or transfer contracts and services, as needed

Workforce

No transfer of IT staff required

Scenario 9: Breakup

Last up, we come to the most complex type of divestment transaction. This is where you set up each entity as its own company, then close down the parent.

Challenge

Action items

Systems and processes

Create several stand-alone platforms for each surviving entity

Close the parent’s holding entity and related systems

Data

For each entity, extract and transfer all historical business and financial data

Set up a long-term archive of financial data for the closed holding

Assets

Choose how to deal with contracts, software licenses, and assets from the parent company

Workforce

Decide how to handle your IT staff:

1.     Split up the parent IT staff and transfer to entities

2.     Transfer all IT staff to an independent services joint venture

3.     Outsource IT support

Pro tip: Engage an expert

As you can see, there are a lot of moving parts that come along with these challenging business transitions. Whether you need to bring organizations together or split them apart, it’s likely that you could use help from an expert who does this day in and out. That’s why more than 50% of organizations reach out for IT help as part of their merger, acquisition, or divestiture (Gartner).

At Binary Tree, we offer end-to-end M&A solutions that can help you:

To find out more about how we can help, get in touch.

 

Source: Gartner. Key IT Challenges in Mergers, Acquisitions, and Divestitures. June 2017.