Key steps CIOs can take to supercharge an M&A technology integration

In brief

• It’s essential to align merger and acquisition (M&A) technology (IT and cybersecurity) strategies and synergies with overall business integration goals, while balancing daily technology operations.
• Chief information officers (CIOs) and tech leaders may need to refresh their M&A technology integration methods to better manage costs and enhance deal value.
• Serial acquirers should consider M&A-aware architecture to accelerate deal execution and value creation.

This article is authored by:

• Eric Aminjavahery, Partner, EY-Parthenon
• Bimal Pall, Partner, EY-Parthenon

CIOs and technology leaders at corporates and private equity (PE) firms are facing rising expectations to integrate faster, realize higher synergies, enhance deal value and achieve strong technology and business alignment, all while reducing transaction costs. In fact, per EY research, technology is the third-highest transaction cost driver at 2.5% of the deal value. Moreover, in the 2024 EY CIO Sentiment Survey, 96% of the CIOs say they were involved or will be involved in a corporate transaction, and almost two-thirds of CIOs (64%) have been involved with six or more transactions. However, meeting technology goals in M&A has proved challenging, with only 32% of CIOs saying they are “significantly” meeting deal objectives such as technology synergies and closing the deal on time in past transactions.

To overcome these potential obstacles, it’s crucial for CIOs and technology leaders to reassess and refine their M&A technology methodologies by taking the following key steps:

Apart from aligning regular operations, communications and decision-making, the Tech IMO plays a critical role connecting the transaction strategy impacts to the broader technology strategy. To best position the target to meet and exceed the future-state vision, it’s critical for the Tech IMO, in alignment with the business, to consider the four different integration types when formulating and executing the overall approach.

Integration strategy

By understanding the overall deal strategy, technology leaders can define a tech integration strategy that’s fit for purpose and can adapt to the future-state vision.

2. Balance integration with existing technology priorities

To help enable both transaction and longer-term success, it’s essential for organizations to align the technology integration strategy with the combined organization’s long-term technology roadmap and business strategy to minimize temporary solutions and throwaway costs. While this may sound obvious, organizations often neglect this when executing a transaction.

The reality is that corporates and PE firms must balance technology priorities, which potentially conflict with one another. Ongoing business and growth needs, M&A projects and other digital initiatives often require CIOs and technology teams to shift attention, resources and funding between managing the day-to-day to enhancing and innovating the organization. This often means companies must focus on short-term and specialized objectives, while continuing to support the technology organization’s evolution toward its future state. While CIOs make M&A decisions that affect the corporate technology organization, it is also important for them to understand how the broader business priorities and objectives affect core technology support for regular operations.

This approach allows the C-suite to align technology capabilities with business strategies, identify functional gaps, manage conflicting priorities and focus on generating value rather than just cost savings. Understanding the transaction rationale and working with a strong IMO can enable technology and business leaders to manage M&A along with other priorities.

3. Define and manage technology value creation and synergies

Technology workstreams are a large contributor in identifying, supporting and achieving both cost and revenue synergies. It’s critical for CIOs and tech leaders to maintain a clear alignment with the deal hypothesis and value drivers and place focus on synergies, even as early as the initial diligence work. 

To start, setting realistic technology synergy targets is essential for improving post-transaction operations and organizational finances. Once realistic targets are set, creating the right technology operating model, including traditional capabilities like cybersecurity, infrastructure, networking, end-user computing and enterprise applications, helps identify and realize cost synergy opportunities. Separately, technology will also need to support discussions with the business to determine how technologies can be enhanced or implemented to enable revenue synergies, even when technology is not the primary deal focus.

As the technology team begins due diligence, it’s important to hypothesize and even identify both revenue and cost synergy opportunities, including:

• Leveraging technology to drive top-line growth and/or access new markets
• Modernizing business operations and products
• Identifying and driving operational efficiencies

As the transaction strategy planning matures, future-state technology operating and cost models can help identify opportunities for reduced costs in applications and the organization by consolidating overlapping functions. For many synergy opportunities, the realization process will be planned in detail post-signing or post-close.

It is important to remember that synergies and cost reductions are not realized in a linear fashion. Achieving longer-term savings can require up-front investment or one-time transaction costs. In a traditional buy-and-integrate scenario independent of up-front investment requirements, EY-Parthenon research has found that up to 70% of technology synergies are realized 18 to 36 months after deal close. To accomplish this, it is essential to commit time and resources to strategy, planning and execution efforts.

Technology is responsible for either leading or enabling deal synergies, ultimately becoming a main driver for meeting or exceeding targets

The focus on deal synergies is dependent on deal rationales and may not be at the core of every type of transaction. When technology cost savings are realized, a CIO and their team can showcase value to the broader leadership team and create shareholder equity value.

4. Focus on cybersecurity throughout the integration

According to the 2024 EY CIO Sentiment Survey, more than 53% of CIOs report that they see cybersecurity as a top challenge in the M&A lifecycle. For example, in our experience, it’s common for transactions to be disrupted because of late integrations and thoughtful consideration of cybersecurity.

Early and continued partnership with the cyber and IT functions, as well as the business, can create transaction security, reduce costly and time-consuming rework and remediation, clarify up-front costs, and inform overall technology design and systems implementation. It’s critical that cybersecurity is actively engaged from diligence, through strategy and planning, to minimize risks and exceptions to standards. For instance, organizations can help strengthen the cyber and IT diligence by leveraging transaction accelerators, like using artificial intelligence (AI) and generative (GenAI) for automating documentation analysis, simulating cyber attacks or data breaches, and analyzing vulnerabilities in software applications.

Including cybersecurity representatives in each IT workstream paves the way for expedited security approvals and adherence to known standards or guiding principles. In addition, maintaining robust cybersecurity measures is a top priority during integration processes such as data transfers and system migrations to protect sensitive information.

Transactions can be particularly vulnerable to bad actors during data integrations or migrations. To protect sensitive client, customer and company data, it’s crucial for an organization to have robust cybersecurity procedures in place.

Assessing potential security risks, a critical and often overlooked step, is an essential action to take during the due diligence phase. At this juncture, it’s important for firms to address key cybersecurity risks and impacts associated with the company and the transaction, including those associated with the following:

• Breach of personally identifiable information (PII) or other sensitive information
• Loss of trade secrets and other proprietary information
• An operational attack, such as a ransomware attack, that could prevent the company and/or its customers from functioning properly

It is also important for cyber to sustain engagement throughout the full transaction to continually identify and mitigate risks as they arise through design changes, migrations, and the full transaction work.

5. Serial acquirers: establish an M&A-aware architecture to accelerate deal value creation

The EY M&A-aware architecture is a versatile systems-level approach to apply enterprise system architecture and standards that support scalable solutions for transactions. Putting this practice in place can accelerate transactions and deliver deal value quicker by streamlining critical components of an integration. This is particularly valuable for serial acquirers with M&A as a core part of their overall corporate strategy. It’s essential that the tenets adopted reflect the organization’s M&A maturity level and specific needs.

There are various ‘M&A-aware’ architecture approaches available based on the organization’s M&A maturity and needs

IT drives the architecture to establish an enterprise-wide baseline alignment around technology to accelerate integration and deal value realization, ultimately reducing transaction costs. To support this approach, it’s beneficial for IT to select architecture solutions based on deal type and thesis.

Why M&A-aware architecture is valuable: