Part of:How to manage the multifaceted post-merger integration process
M&A integration plan calls for careful systems balance
Systems and business process rationalization can be a chore when pursuing a post-merger integration plan. IT services firms carefully choose the components to deploy companywide.
IT services firms, accustomed to binding disparate systems for clients, may need a dose of their own medicine when they execute mergers and acquisitions deals.
The flurry of deals in recent years has increasingly posed questions about how services providers can best integrate their companies. When a transaction closes, the reorganization of employees typically demands immediate attention. But technology and business process integration should soon follow as a key component of an M&A integration plan.
When weighing post-M&A integration approaches, key considerations include the size of the companies involved and their respective levels of technical and process maturity. Cloud has emerged as an important variable to consider as well, with a recent Accenture report citing the computing approach as an integration pathway for some post-acquisition scenarios.
But no matter how one slices it, the systems side ranks among the top challenges for integrating IT services firms.
"The platform and system [component] is always one of the longest poles in the tent," said J. Neely, managing director and global lead of M&A at Accenture Strategy.
Selecting systems and processes
The acquiring company, especially if significantly larger than the company it has purchased, typically holds sway when it's time to sort systems and business processes, Neely said. When a large buyer operates more mature systems, the smaller company adopts the larger firm's ways of doing business. Additionally, smaller companies' systems, as solid as they may be, aren't scaled to function for a larger enterprise.
But in a merger of equal-sized companies, or deals in which the gulf between acquirer and acquiree isn't so vast, the adoption of systems can go either way.
Julian Box
Calligo, an MSP based in Jersey, a British crown dependency, has acquired 10 companies over the last three years. The company often standardizes on systems and practices used by acquired companies. For example, Calligo hadn't rationalized monitoring systems early in its existence but later decided to adopt a monitoring system used by an acquired MSP. Calligo deployed the monitoring systems companywide.
"The [acquired company] had a monitoring capability that was really good, so we took that and rolled that out," Calligo CEO Julian Box said.
The company's philosophy calls for the adoption of products or services it considers best -- regardless of which entity owns the assets, he said. The approach fosters cooperation between companies as the M&A integration plan unfolds.
"It helps people believe in the process," Box said. "It is not about some bigger company gobbling them up."
In another case, Calligo internally deployed an acquired company's reporting tool, which covered time planning and billing for professional services. Although Calligo had already had its own package, the acquired company's tool was more advanced and comprehensive, Box said.
The ability to tap into the acquired company's IP let Calligo leapfrog its own reporting technology without a long period of development. "We gained several years of their knowledge very quickly," he added.
Walter Heck
HeleCloud, a cloud consultancy based in London, had a similar experience when it acquired OlinData, an AWS partner based in the Netherlands. In that case, business processes were also considered for possible adoption. HeleCloud, founded in 2016, purchased an older company in OlinData, which launched in 2008. The HeleCloud executive team sent a clear message to the acquired firm that they wanted to adopt the best processes from OlinData rather than discard them, HeleCloud CTO Walter Heck said.
"For instance, the hiring process that OlinData developed was quite efficient and quickly identified the people we would want to hire," Heck said. "That was adopted by HeleCloud."
Accelerating the integration process
The process of standardizing on one system can often take time. Based on Calligo's experience, the technology rationalization phase requires four to six months, Box noted.
J. Neely
In the case of global megamergers, however, where billion-dollar-plus companies combine, a single systems integration project could take 12 to 18 months, Neely said.
Cloud computing can speed up the technology rationalization phase of an M&A integration plan. "[M]any organizations are turning to cloud technologies to both smooth and speed deal-making and integration," noted Accenture's "Merging M&A and cloud journeys" report, released in February 2021. For example, when two merging companies operate mature cloud programs, they can significantly reduce integration timelines, according to Accenture.
The platform and system [component] is always one of the longest poles in the tent.
J. NeelyManaging director and global lead of M&A, Accenture Strategy
In addition, moving to the cloud as a greenfield approach can facilitate divestitures or carve-out transactions, which both result in a newly standalone entity that needs its own IT infrastructure. Carve-outs, for example, "are faced with building back in critical back-office infrastructure," said Neely, who co-authored the Accenture report.
Traditionally, the new entity would enter a transitional service agreement (TSA) with the seller to continue using the seller's legacy systems until new infrastructure can be deployed, Neely explained. By migrating to the cloud, however, the new entity can reduce its dependency on the seller, gain access to modern infrastructure and cut short the TSA, saving money.
"Greenfield is a great way ... to leverage the cloud and get to a better end state faster," Neely said.
Greenfield isn't a fit for every acquisition scenario, of course. A combination of complex, overlapping enterprises, for instance, would rule out an abrupt break with the past and a fresh start in the cloud, Neely said.
Julian Box
Walter Heck
J. Neely
