Computer Weekly reported recently that merger and acquisition activity is likely to continue despite - or perhaps because of - the credit crunch, writes Marc Bray, operations director at Totalamber.
We at Totalamber share that view. We also see businesses being insufficiently diligent with the IT side of due diligence in their hunger to acquire other companies' customers and order books. Businesses run the risk of overlooking the processes and operations that will enable the newly-formed business to hit the ground running.
It is alarming companies assume the IT system of the company they are buying will be adequate simply because the company has been running it for some time, without considering its impact on their current systems and processes or its suitability for the future of the business. Conversely, the systems in use at the company being acquired may be better suited than the ones of the company expressing the interest.
IT directors and consultants would benefit from taking a holistic view of the two systems, evaluating whether there are likely to be integration problems, not only in terms of operating two systems but also sharing data held on each system. Taking this view could raise or lower the cost of the acquisition and avoid pitfalls.
Involving IT teams and consultants, not only finance and operations teams such as HR at the outset of a due diligence exercise, rather than expecting them to sort out inherited problems once the deal is done, reduces the upheaval that can accompany an acquisition.
Separate systems, such as human resources and payroll, may come with separate maintenance contracts, licences, and incompatible data, leading to duplication of cost and effort and the late delivery of information. If information is delayed, it becomes less useful, reducing the newly-formed company's ability to compete. Adopting a single datapoint reduces error.
If a company knows what it is facing, it can take a forewarned approach. It needs to empower its IT teams and consultants to take the same approach as a homebuyer, offsetting the costs of upgrades or replacements against the cost of the acquisition.
A merger plan should look at IT systems and data integration and associated costs as much as looking at a Transfer of Undertakings, rebranding and other aspects of a merger.
Another factor for consideration is that a merger and acquisition situation presents IT teams and consultants not only with the opportunity to review and choose between the existing systems, but also to identify the key attributes they need in the new company's key enterprise systems (HR & Payroll, ERP, Business Intelligence/Analytics) if they decide to replace. A structured approach to evaluating potential suppliers of systems and services to the new company is vital in this situation.
Valuable lessons can be learned from the public sector's programmes for fair assessment and evaluation, working with IT consultants to develop a scorecard for comparing potential suppliers and holding tendering and pitching processes to ensure a fair price. The return on investment of conducting such a process would be realised in terms of smooth transitions and process improvements throughout the business.
Totalamber is working with a number of acquisitive companies. Different strategies for incorporating IT from acquired or merged companies are being developed. One example is for an acquisitive company to develop a standard template or configuration, mandates that an acquired company takes this on, implements the new software and migrates existing data into this new system.
This is a hard-hitting approach but ensures acquired organisations are up and running and providing effective services into the group as quickly as possible. This approach reduces support and maintenance costs and also ensures consolidated management information is available across the group.
It is a truism that IT is key to running a business. Effective due diligence around IT systems is a growing trend because it gives companies a standard model to roll out in further acquisitions, reducing administration time and costs and streamlining business continuity.
Totalamber Ltd provides software consultancy services for the design, implementation, support and maintenance of key enterprise applications.