IT is Critical Success Factor in Mergers & Acquisitions

Despite their ongoing popularity, many mergers and acquisitions still fail to meet projected benefits. Enterprise software rigidity is often a major reason for disappointing post-merger results. This is completely unnecessary, according to Agresso.

The global buyout frenzy reached an unprecedented peak in 2007 as the total deal value topped at U.S. $4.83 trillion globally, an increase of 27% from 2006 when the previous record was set (source: Dealogic). Despite that, the success rate of those buyouts remains alarming. For example, a 2007 study from Hay Group revealed that over 90% of European corporate mergers and acquisitions fall short of their objectives.

In addition to traditional reasons, such as clashing cultures, mismanagement or a flawed strategy, IT now also takes (part of) the blame for failure. This is hardly surprising: in a recent TEC survey, over 75% (source www.technologyevaluation.com) of managers worldwide admitted that they do not always consider the operational impact of applying change to their enterprise applications when making a strategic business decision. 

According to Ton Dobbe, VP Product Marketing at Unit 4 Agresso, this profound lack of attention for what happens after the merger is the root cause of the problem. "Enterprise applications are a known factor. It's quite possible to investigate during due diligence how much effort application change and systems integration will take. Therefore, IT systems can never be a valid excuse for a failed merger or acquisition."
 
When enterprise applications are not adapted timely and properly to the post-merger situation, the combined organization typically runs into the following problems:

• Lack of information – disparate ERP and business intelligence systems make it impossible to compare the performance of various business units and generate reliable management information.
• Lack of synergies – because processes and departments can’t be integrated effectively, expected synergies aren't realized.
• Lots of extra work – as long as the IT systems are not up to the task, a great deal of manual effort (checks, retyping, etc.) is required to create a semblance of integration.
• Fraud and creative bookkeeping – because proper governance controls are missing, it becomes relatively easy to manipulate data.
  

"The expected benefits of a merger - shareholder value and economic scale, mostly - are often lost due to inadequate post-merger adaptation of enterprise applications," Dobbe continued. “Legacy ERP systems in particular are very difficult and costly to change. It's typically companies that are in rapid change mode that suffer from this. Such companies should seriously consider migrating to new alternative solutions that embrace post-implementation agility. The cost of doing nothing will easily exceed the cost of such a switch."

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