IT Can Prove Worth by Helping Companies Navigate M&A Minefields

Ann All

One of the mantras of IT managers is to prove IT's value to the business -- in ways that really matter, preferably with a direct impact to the bottom line, and in terms the business can understand.

 

A prime opportunity for doing so is in performing the IT-related due diligence that is so important to a successful merger or acquisition.

 

As in other past economic downturns, M&As will increase as some companies look to be purchased to survive and others buy to help bolster their revenues. As I wrote last month, expect deep-pocketed giants like Cisco and IBM to acquire companies that can help them expand their portfolios of products and services.

 

IT Business Edge blogger Carl Weinschenk earlier this week wrote of the importance of making sure systems remain locked down during M&As. All too often, security issues are neglected as companies address the myriad of other technical issues involved in system integration and/or migration.

 

And integration can be a pretty big stumbling block, as IT Business Edge blogger Loraine Lawson wrote last month. She cited a shocking statistic from a 2007 Bloor Research report that 79 percent of M&A activity shortchanges integration issues. Among the activities that should be addressed: merging general ledgers, consolidating customer service functions and aligning outsourced functions. Loraine's post is packed with suggestions from experts, including examples of successful M&A integration efforts.


 

If important issues like security and integration are given short shrift during "normal" M&As, imagine how much they can suffer in the kinds of hastily-arranged deals we've been seeing in the financial services sector (i.e. : Bank of America's acquisition of Merrill Lynch; JPMorgan Chase's deal to purchase Washington Mutual; and Wells Fargo's fight with Citigroup to buy Wachovia). And IT is an even bigger deal for financial services companies than for most other firms because it drives nearly every aspect of their business.

 

That's the theme of a CIO.com article that includes lots of interesting insights from experts like Tom Reichert, a partner in the Financial Institutions practice of The Boston Consulting Group. He says merging companies expect to achieve a "synergy" value of 10 percent to 25 percent of their combined IT budgets.

 

While it's important for any company to identify and evaluate all of the IT assets that they will be acquiring, the growing list of regulations with which financial services companies must comply makes it an even more essential consideration for them. Says Michael Markulec, CTO of Lumeta, a network mapping and monitoring vendor:

You have to identify all of the assets on the network that you've just acquired: What's out there? How many routers, servers and end-point stations? ... Companies may be introducing vulnerability that they didn't know exists. That's the biggest fear on the networking and security side when they go through the acquisitions.

Just as stressful -- if not more so -- as all of these nuts-and-bolts tech issues are the disagreements that can arise as some companies turn evaluations of technology into a broader debate over corporate culture. Due diligence sometimes becomes a power play, says Tom Casey, a vice-president at Booz & Company.

 

Casey's biggest piece of advice? Though a merger obviously puts a lot on IT's plate, "complaining about it does you no good at all."



Add Comment      Leave a comment on this blog post
Jun 20, 2009 1:44 AM Alex Alex  says:

I see so many companies fall into the trap of not conducting proper security due diligence and slowing down their transaction or incurring additional transaction related expense as a result. It's refreshing to see other industry professionals addressing this topic.

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