Mergers and acquisitions (M&As), including divestitures and other corporate structuring efforts, have become big business. In its 2019 trends report, Deloitte indicated that 79 percent of survey respondents expect the number of deals they close in the next 12 months to increase, up from 70 percent last year1. The size of the transactions will also be larger.

At the same time, failures are many and often public. The Harvard Business Review says that 70-90 percent of M&A deals are “abysmal failures.”2 Other analysts agree.

Behind the numbers lie the very public carcasses of once prominent companies: Sears, Kmart, Myspace, Compaq, Penn Central and others.

The truth is, that the business value expected following an M&A sometimes doesn’t pan out. Often the key reason that M&As fail to produce expected results is due to inadequate integration and execution efforts.

Understanding why M&As fall short of their expected returns and how to avoid these common pitfalls is the first step to M&A success.

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5 Ways toImprove IT Integrationand Increase M&A Value

W H I T E PA P E R

Reasons M&As often fail

In spite of the strong deal environment going into 2019, 12 percent said that more than half their deals in 2019 did not meet expectations, while more than half said that up to a quarter of all deals fall short of meeting or exceeding expectations.3

While the numbers have improved since 2016 when a dismal 40 percent said that half their deals failed to deliver, there is still work to be done.

For example, when the executives in this year’s survey were asked why their M&As didn’t deliver4 as expected, many cited economic factors which, for the most part, are out of the control of even the savviest of us. But when considering internal factors, or those that can be largely controlled, many cited the “usual suspects”.5

Expected sales did not materialize 33%

Execution/ integration gaps 32%

Talent issues at target company 26%

Not achieving expected cost synergies 26%

Not achieving expected revenue synergies 23%

Inadequate/faulty due diligence 23%

Not a well-defined M&A strategy 24%

Not achieving cultural alignment 20%

For those internal factors highlighted above, the numbers have slightly increased over last year. So how can organizations improve their M&A success rate?

5 Ways to Improve IT Integrationand Increase M&A Value

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How IT integration drives successful M&As

The IT team has a dual role during an M&A. It needs to: (1) ensure the continuity of the day-to-day business in the short-term and, more importantly, on Day 1, while (2) working to align the new strategy of the re-structured business.

Critical to this process is IT integration. Yet it is often overlooked when planning for a merger, acquisition or divestiture. Many executives simply view IT as an internal service provider, not a business enabler or a key stakeholder. According to Deloitte:

Understanding why M&As fall short of their expected returns and how to avoid these common pitfalls is the first step to M&A success.

“…given the connective tissue of IT and other internal and external business functions, it is critical that IT executives be included on the deal team and lead IT due diligence during the target screening process. IT diligence can uncover operational and financial risks that may impact the deal’s overall accretive value (e.g., EBITDA) and identify key cost drivers for current and future-state IT environments…”6

In a recent IDG QuickPulse survey,7 most counted their transaction as a success even though challenges were many and consistent throughout. The top challenges, weighted for comparison, were:

Streamlining IT architecture and services 2.3

Estimating IT integration efforts, risks, and timelines 2.3

Properly assessing the other company’s business processes 2.2

Right-sizing and optimizing assets 2.2

Accurately assessing the scalability of the IT 2.2

Determining how much integration is actually needed 2.1

Planning and budgeting 2.0

Rationalizing the application portfolio 1.8

Fully understanding your own architecture 1.8

These respondents were most heavily involved in a merger or standalone acquisition over the last five years. While just 12 percent were involved in screening M&A candidates and 26 percent took part in due diligence, nearly half were actively involved in IT integration planning, the initial IT integration and the main IT integration.

Because of the high level of interdependency between IT and business units—Sales, Marketing, Finance, HR, etc.— IT must lay the foundation on which business units can execute their integration plans.

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5 Ways to Improve IT Integrationand Increase M&A Value

5 ways to improve transparency and increase M&A value

That said, here are five ways to increase transparency and drive greater value from your merger or acquisition efforts:9

1. Put IT on the M&A team. Getting the IT team involved after the deal has been done is akin to going into the big game without a playbook. “IT is a major driver of M&A benefits,” says Deloitte, “enabling a significant portion of identified cost synergies across the business enterprise.”10 In other words, put IT on the M&A team. As an IT leader, you’re responsible for ensuring that your executive team and board understand the challenges of merging technologies and the risks associated with not putting a focus on it. Outlining the benefits and risks and educating executives at the first sign of merger conversations should get you a seat on the team and put you in a position to help drive success.

2. Provide a single source of truth. Making the best business decisions requires everyone in the organization to use the same data. A unified set of data enables simpler, more cost-effective and reliable IT services. An accurate and up-to-date inventory of IT assets, often contained in a configuration management database (CMDB), is also vital to a successful M&A. After all, the inability of IT to provide accurate data on its own assets jeopardizes the reliability of any other data provided to the M&A team.

3. Use industry standards and best practices. Standardizing on ITIL (Information Technology Infrastructure Library) or another set of standards and best practices makes it possible to consolidate data siloes, fragmented tools and legacy systems—and automate processes.

4. Manage IT services, not hardware. IT is about service delivery, not hardware management. For IT to provide transparency into every aspect of an organization’s business processes and be a strategic enabler to the business, it must manage IT services from end to end.

5. Incorporate IT service management into every business process. Key to creating the transparency that makes an M&A or divestiture successful is to take the same level of structure, best practices and consistent service delivery created for IT and apply it to every repeatable business process—whether in sales and marketing or finance, legal, HR and others.

Transparency into data, IT assets, operational practices, and business processes—before, during and after integration—empowers IT to deliver more than “integration” of the buyer and the acquired. It enables IT to deliver benefits at all phases of the M&A process: from arriving at accurate valuations in the due diligence phase, to highlighting compliance or integration issues in the planning phase, to understanding exactly what IT assets are owned and how to optimize their use in the integration phase. This information is most vital at the time management is making go/no-go decisions.8

5 Ways to Improve IT Integrationand Increase M&A Value

The right partner to help transition IT through M&As

Fortunately, IT delivery is being transformed, driving new strategies and technologies that—with a knowledgeable and experienced partner—make it easier to achieve business value from M&A efforts.

Logicalis specializes in helping companies run their businesses in two worlds, while navigating M&A transactions under challenging circumstances and tight timelines. Backed by extensive experience and consulting leadership, Logicalis provides a range of services to help organizations through standalone acquisitions, mergers, add-ons, carve-ins/carve-outs and spin-offs. These services cover:

• Platform effectiveness & capabilities

• IT strategy development and deployment

• Financial costs and structured actions

• Vendor & suppliers contract optimization

With the Logicalis Extensible IT framework, organizations can deliver IT services that work together seamlessly, are easily managed, and enable businesses to grow through digital transformation.

Seamlessly integrating applications, data centers and communication platforms—with the right partner and through a transparent and transformative IT process—paves the way for organizations to successfully complete their M&A deals and derive the intended business value from them.

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1 “The state of the deal: M&A trends 2019,” Deloitte.com, 2018.2 “Mergers & Acquisitions: Success Starts with Transparency,” ServiceNow PPT, 2017.3 “The state of the deal: M&A trends 2019,” Deloitte.com, 2018.4 “M&A Making the deal work,” Deloitte.com, 2017.5 “M&A Making the deal work,” Deloitte.com, 2017.6 “M&A Making the deal work,” Deloitte.com, 2017.7 Logicalis QuickPulse Survey, 02/2019.8 “Mergers & Acquisitions: Success Starts with Transparency,” ServiceNow PPT, 2017.9 “Mergers & Acquisitions: Success Starts with Transparency,” ServiceNow PPT, 2017.10 “M&A Making the deal work,” Deloitte.com, 2017.