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