Are you Ready for a Merger or Acquisition?

mandaAccording to FACTSET’s June 2015 report, U.S. M&A deal activity decreased in May, going down 6.3% with 903 announcements compared to 964 in April.  However, aggregate M&A spending is increasing and on the rise.  Over the past 3 months, the sectors that have seen the biggest increases in M&A deal activity, relative to the same three month period one year ago, have been:

  • Technology Services (526 vs. 477)
  • Distribution Services (173 vs. 129)
  • Finance (411 vs. 370)
  • Health Services (144 vs. 125)
  • Communications (42 vs. 30)

This isn’t just happening in the United States. According to The CA Magazine, the estimated mergers and acquisitions (M&A) deal volume in Europe for H1 2015 is $583m. Last year, the UK saw 1,238 M&A deals took place in that year alone. The main drivers for the uptick in M&A across industries include the need to hedge against rising operating costs, tax advantages, increasing competition from foreign entities, and prerequisite to expand into emerging markets due to declining revenue from existing/saturated markets. Once a deal is announced, the clock ticks away for the real work to begin including:

  • Human resources departments must ensure that employee benefits and payroll processes run uninterrupted across companies
  • Finance departments must ensure they can manage the “books” across businesses, satisfy regulatory reporting requirements, and other fiduciary duties.
  • Sales and marketing groups must begin the process of defining and executing up-sell/cross sell campaigns to increase wallet share across customer bases
  • Procurement and merchandising groups must be able to quickly audit and inventory overlapping products and services along with their supplier relationships

Behind all of these business areas, it is usually in IT where the heavy lifting occurs.  Here are some of the key activities required by Operations and IT groups and the challenges they face:

  • Audit and inventory system and data:  One of the immediate activities required during an M&A is for IT to conduct a full system and data inventory must be planned and executed quickly to identify what systems and data need to be integrated, consolidated, and/or eliminated. A key challenge is not having good documentation on what systems and data exist across the enterprise due to employee turnover or lack of proper IT and data governance. A good starting point is to identify business/subject/data experts across both business and IT and form a data governance working group to research what exist as well as document what they know as a starting point for this initial phase.  This is less about technology but more about planning, people, processes, and standards however companies with mature metadata tools both business and technical metadata are less impacted as those technologies often contain the documentation and lineage required to complete what IT has to get done in these events.
  • Centralization of common business data:  Business data including customers, employees, products, and supplier data that requires integration between the acquired and acquiring company’s business applications must be accessed audited, and standardized before it can be shared and in a safe and secure environment. Depending on the size and complexity of both organizations and available documentation explained above, this is where things can go extremely wrong and cause many post M&A work efforts to fail. It can be and is often difficult to access, translate, share, and govern common business data as point to point integrations between systems. Even more difficult is the work required to identify and address data quality errors in each source system.  This is where solutions like Master Data Management and Data Quality solution can help by accessing, relating, cleansing, sharing, and governing a single view of your business across systems in real-time.
  • Protecting sensitive data used in M&A driven IT projects:  Unwanted data breaches are not always caused by criminals breaking through network security systems via the internet. In many cases, data extracted from production systems that contain sensitive information may get lost or compromised during these major IT activities. It is important to leverage data from production systems for testing and development however sensitive information should be masked with purpose built tools that prevents “unmasking” while retaining the relationships between the data elements which is not always possible through one off custom scripts.
  • Application Integration, Consolidation, and Decommission:  From a systems and application perspective, a full application rationalization process kicks off to identify which system to keep, integrate, consolidate, or decommission. Consolidating and decommissioning applications is no easy task. In particular when it comes to decommissioning applications, which systems to keep vs. retire can be difficult to determine and execute. It’s common that systems that contain data used by the business are kept alive however this approach is costly and risky both for business and IT organization. An alternative approach is to adopt data archiving solutions that allow IT to offload production data onto secondary storage platforms that allow business and other systems to access but still allow operations groups to safely retire those systems.

If your organization is preparing or in the middle of a merger or acquisition, addressing these areas is must. How ready are you?