3 ways merger and acquisition IT strategies can create value

Acquirers can find value creation opportunities by rebooting IT to transform operations and drive growth during M&A integration.

In brief

• Innovation and growth can result from simplifying the IT operating model during M&A integration
• Cloud-based IT innovation can be a key way to free up capital
• Merger and acquisition IT strategies can include external partnerships

In a deal market where many assets continue to command high valuations, corporate acquirers can uncover great growth opportunities hidden in merger and acquisition IT strategies.

“Every M&A integration needs an IT strategy to drive the most value from the transaction and to transform operations,” says Matt Bartell, principal at EY-Parthenon.

IT can be one of the largest M&A integration costs. But an IT strategy – focused on technology assets, software, digital infrastructure, data and the people involved – is the backbone of future innovation and growth. During integration, dealmakers have a unique window of opportunity to make targeted investments and implement technology that supports new products and services and gives the company a competitive edge.

The IT function within a business can provide a pathway to implementing an innovative IT solution architecture, cutting or avoiding costs and driving organizational design changes to enable a broader transformation that otherwise might be difficult to accomplish outside of the integration period.

“Mergers and acquisitions can shine a bright light on a company’s IT strategy – for better or for worse,” says Adolf Unoarumhi, principal at EY-Parthenon.

To make immediate improvements, acquirers can focus on three key areas:

Simplifying the IT operating model

Every acquisition offers an opportunity to reduce complexity.

Companies need an IT roadmap, and merger and acquisition IT strategies, that integrate the businesses coming together. These can align processes, technology, people and locations based on the business’s future goals and operating model. IT can be the catalyst for the business to develop new, agile platforms to efficiently scale to meet the needs of the new, combined business.

For example, by clarifying the IT approach in M&A integration and its impact on the new organization’s future state, a buyer with thousands of software applications that is merging with an equally sized company might be able to cut the combined entity’s applications by half. Yet many organizations, lacking a proactive strategy and design, miss this unique opportunity to simplify and reduce operating costs.

Business leaders should proactively ask these questions about IT and the operating model:

• Does our IT integration roadmap use the best of both companies?
• How do we scale applications and seize the opportunity to re-evaluate them?

Seizing M&A integration to move to the cloud

Cloud technology can speed integration, lower costs and free up capital as part of an asset-light business model that transfers capabilities, people, processes and technology to “better owners.” In IT, this could involve transferring data and identity verification tools into a cloud-based system and moving to an operating-cost vs. a capital-cost model.

Business leaders should ask these questions:

• Where has market disruption created cloud-based IT innovation opportunities for our business?
• How are we managing cybersecurity risks during the integration?

Rethinking IT people and partnerships

Companies can consider external partnerships to support new IT capabilities, as well as staffing by vendors with greater technical depth, to scale growth opportunities quickly while retaining core skillsets in-house. It can make sense to partner on software development, for instance.

There also is an opportunity to re-evaluate and refresh the experience and skill sets that reside in the IT function, based on the needs of the new, combined target operating model design. This might include a greater focus on managing services in the cloud.

Business leaders should be asking these questions about people and partnerships:

• How do our external capabilities, including vendors and contracts, fit into solution design, construction and execution?
• Where can our internal organization deliver real value, and how should we invest in-house in core capabilities and skill sets that are differentiators?

Acquirors should not overlook the opportunity to use merger and acquisition IT strategies as a catalyst to accelerate an IT reboot. In focusing on three key areas across technology, people and processes, companies can drive significant organizational change and increase transaction value. At the same time, acquirors can benefit from reduced cost and complexity across their IT function. These days, we often hear, “Every company is a technology company.” So, rethinking the IT function as companies pursue their growth strategy has never been more critical.