IT "Merger Repair": Achieving Full Rationalization

Mark Herndon headshot
By Mark Herndon
Chairman, M&A Leadership Council
May 18, 2016

Do you have an integration project (or a work-stream within an integration) that is OBE? That’s a common military term meaning, “overcome by events.” Every integrator has been there, done that, and has at least one T-shirt that says so. It’s a far more common problem than most folks care to admit. Here’s how it often comes about: the integration starts off great and has a successful pre-close integration planning phase, which sets up a successful short-term operational integration of the business, synergies and steady-state operations.

But then, OBE hits – business conditions change. The integration under-performs. Burnout and exhaustion set in, key resources get pulled away to drive the next acquisition or other IT or business change projects that were previously put on the back burner. Perhaps most alarming of all, key leaders or team members lose sight of the forest for the trees. You’ve accomplished so much, but have so far to go in order to capture the full, long-term value proposition originally envisioned by the deal. And now, it seems to slip away.

Our colleagues in the M&A Leadership Council, Ken Smith and Alexandra Reed Lajoux, in their excellent book, The Art of M&A Strategy (McGraw Hill, 2012), indicate that in the last decade alone, more than $1 trillion dollars in shareholder value has been destroyed, not by failed deals, but by deals that have merely failed to deliver their full value proposition as originally contemplated. 

"IT Merger Repair is the often-needed task of 'finishing the job.'"

Indeed, OBE is a highly toxic form of value erosion! That’s a compelling reason for writing this week’s blog post – how to successfully fight back against OBE with a proven strategy for getting the full IT rationalization effort successfully across the finish line. As a general preface to this subject, let me direct your attention to a couple of other related blog posts including Do You Need a Merger Repair? and Two Tracks of Merger Repair, as well as to the two prior posts in this mini-series, Assessing IT Integration Scope & Risks During Due Diligence and IT Integration vs. Rationalization. These set the stage for taking this concept one step further, and to a very important and often required outcome – IT merger repair.

To help us with this important and highly strategic topic, I’m turning again to John Sinkus and Doug Picirillo, two key IT due diligence and rationalization practice leaders at M&A Partners. Both are 30-year veterans of the IT/M&A business and as those of you who know or have worked with their teams can attest, they are among the best in the IT/M&A sector.

MH: John, how would you define an “IT merger repair”?

JS: In our view, IT merger repair is the often-needed task of “finishing the job.” As you point out, many organizations deliver great results on short-term IT integration requirements, but fail to take that process all the way to its most important conclusion – IT rationalization. To accomplish this final step you have to fully exploit synergies and eliminate redundancies in organizational and technology resources, functions and capabilities. The payback primarily comes at the end of the process – rationalization.

MH: Doug, in your experience, what do you see as the most common factors leading to the need for an IT merger repair?

DP: The need for IT merger repair generally has its roots in one of three scenarios: lack of a viable integration and optimization plan; a viable plan that was poorly or incompletely executed; or a change in strategic thinking about the merger.

Assuming IT is involved early and strategically in the due diligence and pre-closing integration planning, we find that most organizations can create a solid initial integration plan. But as John Lennon famously said, “Life is what happens while you are busy making other plans.”

In addition to the failure factors you just mentioned, sometimes the data changes. You do another acquisition that changes your previous plans. The business strategy shifts and the IT strategy must shift with it. And sometimes a previously unintegrated prior acquisition now makes sense to roll into the overall plan. Whatever the causal factors, these challenges underscore the need for viable integration and optimization plans that deliver as much value as possible, as early as possible. 

MH: Doug, given the circumstances you just described, there’s bound to be a significant amount of inertia that makes it difficult to mobilize and execute an IT merger repair effort. How do you cut through that and make it work?

DP: First, you have to understand the reasons for the inertia. There’s the passage of time and general loss of momentum you would expect. Then you often have to get re-sequenced into the planning and budget cycle. Since you are typically pretty far removed from the actual acquisition and short-term operational integration, these long-term payoff initiatives tend to be viewed as belonging to the owning business or to the IT function itself, rather than to a specific acquisition or integration budget.

Finally, you’ve often got to break through the log-jam of the sheer complexity that has accumulated over time and over multiple acquisitions or other systems changes. We’ve got lots of war stories about organizations that have kicked the can down the road on multiple occasions, only to be faced with a much more complex and challenging IT merger repair situation than would have been the case initially.

So the question of how you break through that is mission critical. We suggest you take a page out of your early-stage integration playbook. They only answer is to conduct a new integration strategy framework alignment session, what we sometimes call Game Day, and applied specifically to the IT rationalization scope that remains to be completed. Start with a fresh assessment of the entire IT ecosystem, the organization, the applications, the network, the data centers, governance, operational processes and so on. In short, it requires a complete review of the “business of IT” to recalibrate its alignment with today’s business strategies, objectives and requirements.

This process enables you to get the relevant data on the table and work it through with executives to get alignment on synergies, redundancies, opportunities to get at long-term transformational initiatives, resourcing requirements and the like – all the strategic working assumptions and directional guidance needed to re-scope, re-staff and re-launch a meaningful effort. (Note: for more information about the Game Day Integration Strategy Framework, please refer to Bridging the Gap and Consequences of Inadequate Strategic Guidance for Integration).

MH: John and Doug, thank you both for your excellent insights on this important topic!

IT is the area of greatest risk, cost and interdependency in every M&A deal. Join us for The Art of M&A Business and IT Alignment to master the critical alignment between Business and IT. Hosted by the M&A Leadership Council, this unique executive training brings together industry experts from world-class firms like BDO and M&A Partners. The Art of M&A Business and IT Alignment is only offered once a year, and space is limited. Register today!

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