Mergers and Acquisitions and their IT impact - Research and survey results

Mergers and Acquisitions and their IT impact Research and survey results A survey by Bloor Research and NCC Author : Philip Howard Publish date : November 2007 The overwhelming impression that one gets from studying these results and from reading the comments provided by respondents, is one of CIOs and IT managers struggling manfully against huge odds Philip Howard produced in association with: sponsored by: Mergers & Acquisitions and their IT impact page 1 Executive Summary Introduction This report According to the Boston Consulting Group, between 1992 and This report is organised as follows: 2006 more than half (58.3%) of all mergers and acquisitions not only failed to create shareholder value but actually 1. Executive summary: this section introduces the report and destroyed it, resulting in a net loss of 1.2% across all summarises the highlights of the report. transactions. One might question, then, why companies continue to regard mergers and acquisitions with such favour. 2. Pre-acquisition: this section discusses the activities of the But the answer to that is beyond our remit. What is within our company with respect to IT before and in conjunction with remit is to investigate how IT impacts on M&A and how M&A the M&A event. impacts on IT. 3. Post-acquisition: this section discusses the issues arising It is typical that one of the immediate benefits (or claimed after the acquisition. benefits) of M&A activity is the reduction of costs in the back office: as a result of combining the systems of the two 4. Conclusions and recommendations. participating companies there should be significant savings in both infrastructure and headcount. However, it is our view 5. Appendices: provide further statistical drill-down on the that a significant part of the reason why M&A activity fails to issues discussed in sections 2 and 3 as well as information create value is precisely because it is much more difficult to about company sizes, sectors and so on. achieve these back office savings than most business people normally realise: because this is dependent on the ability to Key findings integrate the two companies from an IT perspective. What we wanted to do in this survey was to find out if this sort of • Only 21% of companies felt that the consideration of IT integration was actually happening in practice and, if it was, issues had been given appropriate weight in the decision to whether it was happening within the first 12 to 18 months merge/acquire. after the acquisition, when most deals are expected to become accretive. Further, we wanted to establish what IT • More than 50% of companies were not able to provide any issues, if any, were viewed as impediments to this integration. integration within 3 months of acquisition: so how were they able to provide consolidated financial reporting? However, all of this is putting the cart before the horse. Before even considering the details of the integration work • More than a third of companies did not expect to complete carried out post acquisition we wanted to know the extent to integration for more than 2 years or could not say when which IT, and the chief information officer (CIO) especially, they would complete such integration. was involved in the M&A process itself. In particular, we wanted to understand the extent to which there was IT • Poor documentation of systems, a lack of metadata, diverse involvement in the due diligence process and how much and uncontrolled data sources and poor data quality were attention was paid to IT issues in the acquisition strategy. all reported as significant problem areas by more than 50% of companies. We will admit to bias here: we expect that many business people, not having a detailed understanding of IT, will make • Poor planning of the IT integration process was cited as a assumptions about how easy it is to integrate diverse IT significant problem by 54% of respondents. systems from separate organisations. As a result they will underestimate the work involved, sometimes very Summary significantly. Moreover, this is one of those “things that you don’t know you don’t know” so it may never occur to the It is clear, both from the comments made and the responses business people involved that they should consult with IT as to to our survey, that IT does not feel that it is properly consulted the complexities of integration and the likely timescales either before or during the merger and acquisition process, in involved. As a result, savings can easily be over-estimated, a great many cases. The business does not understand the the projected time taken for integration can be over optimistic problems that can arise from poor documentation, lack of and, the bottom line, the acquiring company can pay too much metadata and other technical issues that need to be money for the company it is buying. addressed during the integration process. As a result it is all too easy to underestimate the work to be done and the costs In order to test these hypotheses we have worked with the and time involved. It should be obvious that this can seriously UK’s NCC (National Computing Centre) to conduct an on-line impact on the proposed benefits of the acquisition. poll of its user community, asking a series of questions of CIOs and senior IT managers about their experience of M&A processes. Responses were received from 56 companies, the results of which are presented in this report. © 2007 Bloor Research Mergers & Acquisitions and their IT impact page 2 IT involvement in the Merger/Acquisition process The first question we asked was: How well were the CIO or senior IT representatives involved in different phases of the M & A process, and how well were the IT issues considered and understood in the conduct of the M & A process? Quite Very NA / Don’t Very Well Quite Well OK Poorly Poorly Know ❒ ❒ ❒ ❒ ❒ ❒ CIO/IT involvement in the decision to merge / acquire ❒ ❒ ❒ ❒ ❒ ❒ CIO/IT involvement in the due diligence process ❒ ❒ ❒ ❒ ❒ ❒ CIO/IT involvement in decisions about the integration path ❒ ❒ ❒ ❒ ❒ ❒ CIO/IT involvement in setting timescales for integration ❒ ❒ ❒ ❒ ❒ ❒ The consideration of IT issues in the decision to merge / acquire ❒ ❒ ❒ ❒ ❒ ❒ The consideration of IT issues in the overall acquisition strategy ❒ ❒ ❒ ❒ ❒ ❒ The consideration of IT issues in the overall integration strategy The most significant results here were that 46.4% of respondents felt that involvement in the M&A process was quite or very poor, that only the same percentage felt that involvement in the due diligence process was done quite or very well. In particular, only 21% felt that consideration of IT issues as a part of the decision was handled quite or very well. Even the consideration of IT issues as a part of the overall strategy was not deemed to have been a success with more respondents reporting that this had been managed quite or very poorly than saying that it had been quite or very well handled. Details of the various responses are provided in Appendix B. An interesting point here is that the IT services companies covered in this report do not, on average, differ from the general results. However, they were much more polarised, with a significant proportion feeling that they had got everything right here and an almost equally significant proportion saying that they had got almost everything wrong. Few were in the middle. This suggests that some IT services companies are good at this sort of thing while others probably think they are but in practice are not. This could have important implications for selecting suppliers to assist in these and other projects: how well do they eat their own dog food? We then went on to ask for comments with respect to this question. While a minority of companies had clearly had a positive experience more typical responses included: “IT should have had more involvement. IT is now the scapegoat for delays in the completion of the WAN and general communications part of the merger” “It appeared that very little consultation had taken place and the actual logistics of such mergers were never considered.” “The need for systems to connect seamlessly from day one is frequently overlooked.” “Usual problems are that we get to know very late in the day. Even if we are asked to comment on potential IT issues resulting from the M&A these will usually be ignored in favour of the commercial reasons which makes you think why bother asking me.” “Generally brought in too late to the M&A process.