Mergers and acquisitions are a dominant theme in global
corporate news, with the voracious way the big names of the IT
industry are absorbing smaller suppliers mirrored across many other
sectors.
Gartner vice-president Robert Mack has estimated that between
50% and 70% of the analyst group's corporate clients would be
involved in merger and acquisition activity by 2010 as an acquirer,
a target or as part of a divestiture.
The justification for these mergers is not simply the
acquisition of new markets and new customers it is often about the
ability to strip out back-office and IT costs.
The creation of pharmacy retail and wholesale company Alliance
Boots two weeks ago was a rare example in which executive directors
saw a business case to merge companies, but not, for a considerable
period, their IT systems.
The merger of pharmaceutical retailers Alliance UniChem and
Boots, which came into force on 31 July, has been designed to
minimise disruption to the IT function.
The three IT functions from Boots, Alliance Pharmacies and
UniChem - the wholesale arm of Alliance UniChem - were left alone
by the merger.
Alliance Boot's executive management team also decided to leave
Boots and Alliance UniChem's IT directors - respectively Rob Fraser
and Adrian Chen - in their existing roles.
For the foreseeable future, Alliance Boots will continue to run
an SAP system for merchandising, procurement and property for the
Boots business. It will run Evant Replenishment from software
supplier Manhattan Associates as Alliance UniChem's enterprise
management and planning system.
Ovum principal analyst David Bradshaw said, "Directors have to
look at why they merged in the first place and that has to drive
their systems choices.
"If they are seeking to drive down costs overall, they need to
look at the financial systems. If they are competing for customers,
maybe they should start looking at the customer level of data. If
they are combining manufacturing businesses, they have to look at
their manufacturing systems."
David Elton, senior IT strategist with PA Consulting Group's
management group, said, "It is not immediately obvious that just
because there is a merger, there is an economic case for putting
the IT systems together. However, I would be surprised to see two
large companies not moving towards a single infrastructure over
time."
Merging companies will find it easiest to consolidate networks,
datacentres and e-mail systems. Business applications are more
difficult to consolidate because the choice of application is
specific to the processes of the individual business unit.
Elton said, "Where the applications are run by separate business
units, there is less of a business case to consolidate those
systems."
TowerGroup associate director Chris Skinner said, "In a merger
situation, one of the best ways to limit the risk of IT failure is
to choose between the existing systems and migrate on to your
preferred platform, rather than create something new. If you do not
take this approach, you may be missing out on the most
straightforward merger efficiencies."
Systems consolidation is made more difficult if the companies
involved in a merger have customised their packaged
applications.
Bradshaw said, "The biggest nightmare in a takeover is not from
the software itself, but from the customisations that have been
made of the software. The more people that have messed with the
software, the more problems the companies will encounter."
Whether merging companies opt for absorption, standalone systems
or best-of-breed architectures, they will have to produce accurate
financial reports within the first few months.
Companies can either consolidate their financial systems as
their first major IT project, or report the results of their
operating companies separately and bring the information together
at the end of the process.
For its financial systems, Alliance Boots is continuing to use a
Codascisys system for the Alliance UniChem operating company and
SAP for its Boots business.
Alliance Boots plans to consolidate both sets of accounts in its
Frango performance management system so that it can produce its
first set of financial results for the City in November.
Stock exchange merger
Possibly the most ambitious consolidation of systems this year
will follow the New York Stock Exchange's expected merger with
pan-European stock exchange Euronext.
The two stock exchanges have announced that they will replace
three cash trading systems with a single platform by 2009. They
will also migrate three derivative trading systems on to a single
platform.
The companies' 10 datacentres will be reduced to four and their
four networks will be rolled into a single global network.
At the announcement of the merger, New York Stock Exchange chief
executive John Thain said, "The numbers have been very thoroughly
scrubbed by our technology teams over the past two weeks and we are
very confident that we can deliver."
System integration success and failure
Some recent high-profile UK takeovers have focused on IT
integration, with differing results.
When Banco Santander published its plans to take over UK bank
Abbey in 2004, it revealed that some of the cost savings to be
generated by the acquisition would come from moving Abbey's systems
on to its own Partenon platform.
Abbey's profitability has improved dramatically since it was
taken over by Banco Santander, but other high-profile attempts to
consolidate systems following an acquisition have failed to add
value.
LCH.Clearnet has written off £45.9m against its consolidation
project, which it formally abandoned in July.
LCH.Clearnet was created by the merger of the London Clearing
House and Paris-based Clearnet in 2003. The merged company planned
to replace about 30 legacy trading systems with a single trading
platform based on Java and Oracle technologies.
But the project missed a series of milestones, and by May 2005
work on the new platform was suspended.
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