Regardless of industry or overall company goals, IT is the lynchpin of every organization. It connects and supports all business systems and daily operations, and directly affects every department, process, customer, and employee. The significance of technology goes way beyond back-office systems – IT is a key revenue driver, and contributes significantly to an organization’s success or failure.

However, too many companies still regard technology as simply an expense, rather than as a core enabler of success. This mindset can lead to missed opportunities and wide-ranging problems when it comes to mergers and acquisitions, where every strategic initiative underpinning the deal is ultimately reliant on IT.

Here are just a few examples of the expansive role IT plays in the immediate and long-term success of an acquisition:

Sales and Marketing. All customer information stored by the acquiring company and the target company must be standardized, integrated, and accessible.

Supply Chain. From procuring materials to distributing completed products, from inventory management to QA – IT is involved in every stage.

Finance. IT systems are required to pay vendors, invoice customers, project cash flow, and conduct all elements of enterprise resource planning.

Human Resources. Hiring, payroll, and benefits systems are all grounded in technology. Even employee retention is affected by IT, as today’s workforce expects technology tools that aid productivity and allow them to focus on meaningful work rather than manual tasks.

It’s easy to imagine the chaos that would ensue if any (or all) of these systems were slowed down or complicated for weeks or months. This is especially true during a transition, when employees may already be feeling stress or uncertainty, and customers are wondering what to expect.

Technology as a Value Creator in Acquisition

In order to achieve the most value possible from M&A – not just during transaction and integration but well into the future – businesses must shift their IT mindsets. Technology is not simply a cost center – when harnessed effectively, it is a leading factor in creating value, competitive edge, and growth.

This new mindset must be employed from the very beginning of the acquisition process, starting with initial deal consideration. The same level of due diligence must be applied to IT as to finances, new market possibilities, and product ranges. Achieving this 360° view requires involving IT leaders in discussions from the moment acquisition is on the table.

Why You Must Involve IT in Acquisition Strategy from Day One

According to a recent Ernst & Young report, only 50% of acquiring companies engaged in separate pre-negotiation IT due diligence during their most recent merger. And almost the same number of organizations (47%) report that more detailed IT due diligence would have made the deal smoother and more profitable.

Here are just a few reasons:

Cost and time estimates. Even for businesses who are aware going into the deal that new IT systems may be required, knowing the specific time and cost investments is important. Timelines given to shareholders, announcements made to the public, expectations of employees – purchasers must follow through with their promises or face financial and reputational repercussions.

Assessing the infrastructure of the target company. A full understanding of the target company’s systems is crucial to planning for integration, pinpointing where savings can be made, knowing which upgrades are necessary, and shoring up security.

Compliance. Many industries face significant regulatory scrutiny, with requirements continually being changed and updated. For transactions involving international companies (or even those that simply serve international customers) regulation is even more complicated. If IT is brought into discussions once the deal has already been made, you miss the crucial opportunity to identify gaps in the target company’s security status, policies, and procedures. However, when IT discovers these issues pre-deal, the target company can be required to fix them, negotiations can be adjusted, and the right tools can be put in place for successful post-merger audits.

Migration strategy. IT cannot simply press a few buttons and have everything instantly integrated. If only it were that easy! Technology has come a long way, but we aren’t at magic-wand status just yet. Successful acquisitions require a clear roadmap for bringing all systems together, which can only be accomplished by getting a strategy in place early on. This is especially the case if one of both of the companies use legacy systems, which often require the specialized knowledge of the employees who have up until now been in charge of them. If those employees are lost during re-org, their knowledge can be expensive or impossible to replace.

Vendor Agreements. Is the target company locked into existing service agreements? That can be a costly surprise to acquiring companies who are expecting to bring new employees into their systems. Service agreements must be renegotiated to either ensure existing licenses are not renewed, or, if everyone is moving to the acquired company’s systems, expand them. Planning for day-one readiness means getting in front of vendor agreements instead of being blindsided by them.

Each of these elements by itself can make a significant difference to the success of an acquisition. When taken together, it’s easy to see why upfront planning is preferable to a last-minute scramble.

Hold On, IT – This Mindset Shift Goes Both Ways

By now it should be clear that the IT department plays a critical role in an organization’s overall M&A plan. IT should be regarded as a key element of business strategy, not just as support.

However, by the same token, IT must also shift their own mindsets from purely technical to business-minded in the big picture. This means that in addition to their hands-on skills, they need to also focus on the following:

  • Which technologies will help the company achieve its core objectives?
  • What are the priorities of the acquisition, and how can IT help deliver on them?
  • What are the full technology-related risks and costs of this integration?
  • How can we align ourselves within the larger operational plan?
  • How can we define a future-based IT model that allows for continued growth?
  • How do we optimize our infrastructure blueprint across locations?
  • Do we have an objective view of our own IT landscape?
  • Are we thinking strategically and not just technically?

It’s an exciting time to be an IT professional. Thirty years ago, we might have been back-room, reactive order takers. Today, we’re strategic, long-game thinkers integral to an organization’s operation and success.

Conclusion

The surface reasons for each acquisition may vary – whether it’s to gain market share, increase portfolios, expand customer base, or offer new products. But the underlying reasons are always the same: To grow profit and increase competitive edge.

For that to happen in the fastest, most efficient, and stress-free manner possible, IT must be front and center in your acquisition plans from day one.

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