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Excellence in Post Merger Integration / Carve-out: Stability beats Optimization

Excellence in Post Merger Integration / Carve-out: Stability beats Optimization

Portrait of Dirk Möbus
合伙人
法兰克福办公室, 中欧
+49 69 29924-6579
2017年9月21日

Many Mergers & Acquisitions suffer from unfulfilled expectations. One major reason is an insufficient integration of IT in the overall integration management efforts, especially an insufficient integration in the PMI program at an early stage. If you want to avoid this pitfall, you have to bear in mind some rules for successful PMI derived from a lot of client projects we did. And if there is one crucial lesson learned in every one of these projects, then it´s this one: you clearly have to prioritize stable systems over optimal ones.

Day 1: stability excels optimization

Operational continuity of your IT systems is business critical. All things going well in a PMI means there are no negative effects for customers and business processes like Order-to-Cash will be running smoothly. Furthermore, your new and old IT employees will be motivated when reporting lines, priorities and responsibilities are clear.

It is well worth designing a target concept for day one for each IT segment - e.g. application and infrastructure landscape, as well as IT organization. Ideally, those concepts are developed in close collaboration with the business departments and aligned between seller and buyer. Specifically, where whole systems and IT organization cross over, cultural, organizational and historic differences need to be considered and managed diligently.

Let's take your IT application landscape as an example. There are several factors to keep in mind.

  • Transferred applications: Which of them are part of the deal? What characteristics do they have: proprietary vs. a standardized market solution? Which functions do they provide? What kind of interfaces and connections need to be set up?
  • Functions to be replaced: Are there any functions provided by 3rd parties, and could they temporarily be provided as a "transition service" by the seller?
  • Which licenses need to be acquired / transferred to run the transferred applications? Can you negotiate new bulk deals incl. the buyer side?
  • Rights management: What access rights to data and applications do the employees need? What about existing security groups?
  • Knowledge transfer: Are IT employees familiar with the applications (esp. customization) part of the deal? Are the respective manuals up-to-date?

Usually, the transferred subsidiary or business division profits from a Transition Service Agreement. However, you need a security net, regular review meetings, fallback scenarios, a slack of additional resources (e.g. at 3rd parties) for issue handling.

When acquiring a whole IT department including a complex legal entity structure, license agreements and their transfer may be connected to certain entities and their relation to each other. Hence, close contact to key vendors will be paramount to mitigate a license transfer.

The cutover: plan meticulously

A well aligned and detailed cutover planning and progress tracking should originate from the IT department, which will be crucial in "flipping" the switch at close. Alignment with business functions and regional IT departments is key for a successful cutover and the progress tracking during cutover week.

A well-defined template used across all regions and maybe even for non-IT topics will promote transparency in a unified documentation approach. Information in your cutover / GoLive plan should include:

  • Preparational (pre-close), GoLive (on-close), and concluding (post-close) tasks including completion deadline and responsible person
  • Holistic contact overviews with email and phone of technical and business owners as well as key user/tester of all critical key systems
  • Overview of critical systems and expected downtimes aligned with business functions
Aligning the cutover plan with all functions and regions along with ensuring a common level of detail and quality will often be underestimated in effort, so that you cannot start the process early enough. Furthermore, the best plan cannot help if progress is not followed up with. Hence, a regular tracking of progress is of the utmost importance. Specifically, within the cutover week a 24/7 cutover management team checking in with all functions and regions twice a day has proven useful in flagging issues and tracking overall progress of the defined tasks.

Day 100: go for ambitious goals

Concentrating on day 1 does not mean you could neglect preparations to reach a target state for each of your IT segments, leveraging synergies and optimization potential from the start (see exhibit 1). Both stabilization and optimization are tightly interwoven.

This means: Your overall M&A objectives need to be translated into guiding principles for the design of your target IT. That concerns harmonization of your application landscape (e.g. the rollout of central software systems) as well as adjustment of your IT infrastructure (e.g. data centers), alignment of your IT organization & governance with central standards and guidelines and consolidation of IT sourcing providers.

This may be easier said than done. Usually, there is no clear target IT concept, but several scenarios with their respective weaknesses and strengths. IT experts should prepare their business leaders thoroughly to help them understand the implications of their IT decisions within the overall transformation plan. Project reporting and governance should not be overdone, but rather pragmatic and efficient. Therefore, it is highly recommended to involve third parties early on to support on non-daily topics, compensate for missing resources and bring in further useful knowledge.


Wrap up: key success factors

Based on our project experiences the following factors are key for a successful PMI

  1. Strictly follow your priorities: stabilization first, optimization second
  2. Translate overall M&A objectives into implications for the IT integration
  3. Integrate stakeholders and management for efficient decision making
  4. Bring in professional 3rd parties soon
  5. Involve business departments, regional IT departments and seller / buyers
  6. Chose pragmatic as well as efficient reporting mechanisms
  7. Ensure detailed and homogeneous cutover planning in all functions and regions and track progress live

  • Photos Jasmina007 / iStockphoto; Erik Isakson / Getty Images; agsandrew / iStockphoto