IT Plays Linchpin Role In High-Stake M&AsIT Plays Linchpin Role In High-Stake M&As
A handful of companies understand what far too many don't--that IT's ability to integrate, and in some cases adopt, an acquired company's IT systems and operations can determine whether a merger flourishes or flounders.
June 24, 2006
Cogent's temporary War Room sits off the first-floor lobby of the ISP's six-story headquarters. Team members huddle around wirelessly linked laptops on a large conference table. In the middle is a speakerphone, where the voice of a field engineer visiting a target company's site can be heard verifying IT inventory. Weekly goals are scribbled on a whiteboard, and team members scrawl complex IT migration plans on a nearby glass wall. Each day, spreadsheets detailing the day's findings are e-mailed to the company's top execs.
Mergers are like marriages--the bride isn't marrying just the groom, but his family, too. In an M&A, the new relationship extends to the acquired company's suppliers. Software license deals, for instance, often can't be transferred from an acquired company. "All the IT suppliers around you will charge at you," says Roland Whitehead, CIO of Bonhams 1793, who has helped shepherd several acquisitions for the London auctioneer. "They believe that with a merger and acquisition going on, you'll be buying new kits, new licenses." After Bonhams 1793's acquisition of auctioneer Butterfields' U.S. operations, Whitehead negotiated enterprisewide fees comparable to the ones Butterfields had, even suggesting to Microsoft that it would switch to the open source OpenOffice productivity tools if the vendor significantly upped fees for the added users.
When it comes to the heavy lifting of system integration, acquirers have three choices: keep the current systems or adopt those of the acquired company; use the opportunity to build an entirely new IT architecture; or adapt parts of both. In most cases, the acquirer's systems and architecture survive, though there are exceptions.
Active acquirers have set processes for tech assimilation. Juniper Networks, which has acquired six companies in the past two years, can migrate back-office applications to its Oracle suite within 90 days, CIO Alan Boehme says. Usually, acquired companies are smaller and their systems can't scale to support larger enterprises. Still, mergers can let a company adopt proven technology, such as when Juniper went with security-access software from Funk Software after it acquired the company last year.
When companies of comparable size merge, they pick and choose the best apps and systems. When HP bought Compaq, for instance, it kept its own iHub supply chain systems, built around webMethods middleware, but adopted Compaq's proprietary CRM and content repository systems. Benedetto, the Solstice VP who was on the IT due diligence team, cautions against dillydallying: "Pick one system and move ahead."
But sometimes it pays to wait. General Electric, an Oracle shop, kept the SAP system of a company it acquired until the multimillion-dollar implementation was fully depreciated. Then it did a hybrid integration and moved the company over to Oracle, says Boehme, one-time CIO of GE's Power Systems business.
Once the technology decisions are made, it's time to port the data--any delays can mean major business disruption. Auctioneer Bonhams 1793 creates what CIO Whitehead calls a pseudo database, in which data from the acquired company is matched with information in Bonhams' Progress database. Once tested and configured, data is transferred to the Progress database. It's also crucial to establish platform-independent portals to give acquired employees access to important information immediately.
Among the thorniest IT issues is what to do with the staff of the acquired company. Consolidation is a fact of life for just about every merger. Without incentives, such as extended severance pay, even those with job security "will be walking out the door left and right," warns Dan Gingras, a partner with Tatum, which furnishes temporary CFOs and CIOs.
During the premerger due diligence, Logicalis collects information about the IT workers, but interviews don't usually begin until "the seventh or eighth inning," COO Flood says. "Really good IT resources are something you should hang onto with both hands."
M&As create stress for both acquirer and acquiree, but early involvement by IT can minimize the trauma. Otherwise, you'll need to do too much in too little time. As software engineering guru Frederick Brooks once said, you can't make a baby in a month using nine women. Plan ahead.
Illustration by Dave Plunkert
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