Corporate mergers and acquisitions occurred at a frantic pace in 2006. In a report issued Nov. 6, outplacement firm Challenger, Gray and Christmas stated that deals for the year had totaled 9,461 and were valued at $967 billion. Though final figures were not available at presstime, the number of mergers and acquisitions in 2006 almost surely surpassed the 2005 year-end total of 10,309 deals valued at $1 trillion.
M&A activity has been fueled by a large influx of private equity, and many mergers are undertaken for larger profits through increased operating efficiencies or the addition of complementary product or service lines. While many plans look good on paper, success often starts in the technology trenches. “After the investment bankers and lawyers have gone home with their money, the ‘sexy’ part of the deal is over and people have to roll up their sleeves and make this work,” says Blake Sellers, president and CEO of Avvantica Consulting LLC.
Smart Business spoke with Sellers about what CEOs should understand regarding technology’s role in post-acquisition success.
What differentiates the pre-acquisition and post-acquisition periods?
Usually when you hear about M&A activity, it’s the ‘pre-deal’ goings-on that get all the press. In most cases, CEOs pay a premium for what they are getting because it’s required to close the deal and they believe the acquisition is worth it. After the transaction occurs, you start to hear phrases like ‘merger integration’ and ‘synergy capture.’ These phrases describe the expected financial gains resulting from the two entities coming together. This is where the rubber starts to meet the road, because technology integration is vital to gaining the operating efficiencies or market synergies that were contemplated before the deal started.
As an example, we’ve recently worked on merger integration issues for a health care company that provides diagnostic imaging services. In this situation, the integration approach that we took for ‘customer-facing’ processes and systems (e.g. patient services) was very different from the approach for ‘back-office’ processes and systems such as finance, accounting and payroll.
What’s the role of technology during post-merger integration?
There are four key components to creating a successful post-acquisition integration plan: people, process, data and technology. And technology usually serves as the foundation of this plan.
From the back-office perspective, the key goals are usually centered on reduced operating costs and/or increased control. So issues like centralization and shared services often come into play for functions like finance and accounting, HR and procurement. For public companies, Sarbanes-Oxley requirements must also be considered.
For ‘front-office’ or customer-facing processes, the objectives are more typically focused on increasing market share and/or improving the customer’s experience. Once again, the integration projects will have to address issues that include people, processes, data and technology; while shared services or centralization are less likely to be considered. For these areas, defining and implementing a set of common processes and systems on a decentralized basis is often the more appropriate approach. Without these types of changes, it’s almost impossible to manage the combined company on a consistent basis.
What are the best practices for executing a technology integration plan?
We can learn a great deal from companies like Cisco and GE because they do this all the time. However, they have the luxury of having M&A teams that are dedicated to merger integration. They also are usually acquiring much smaller firms. When you don’t have an experienced team, or the merger involves two companies that are more equal in size, I recommend setting up an integration steering committee and a program management office (PMO).
The integration steering committee should be composed of company executives such as the CFO, the VP of HR, VP Operations, etc. This group provides the overall governance function, establishes the vision, and makes most of the strategic decisions. Once this group is established, you are set to lead from the top down, so the next step is to set-up the PMO.
What role does the PMO serve?
The PMO does all of the master planning, organization and provides hands-on expertise to the individual projects that make up the overall integration program. It defines the scope of work, the time lines, work plans, organizational charts and the sequence of the projects. Ideally, many of the firm’s own managers will participate in the PMO or manage individual projects that are overseen by the PMO. If the company does not have the internal expertise to create a PMO, this function can be outsourced to experienced contractors or consultants.
BLAKE SELLERS is president and CEO of Avvantica Consulting LLC. Reach him at firstname.lastname@example.org or (214) 751-2820.