Mergers & Acquisitions: Day 1 - Technology
Introduction
Day 1 is when you take full responsibility for the acquired organisation.
In my previous article, I summarised the CIO’s Day 1 priorities in terms of People, Process, Technology and Data.
In this article, I expand on the third of these focus areas – Technology.
Context
As I discussed in a previous article, the Business strategy – particularly in terms of integration and business operation – and your Technology strategy, will be the basis on which Technology decisions regarding the acquired business will be determined.
A key element of this will be decisions about how things will be done; does each organisation retain their own ways of working or do you standardise? And if you standardise, whose processes do you adopt?
Similarly, strategy will help determine whether each organisation retains their existing Technology or standardises and simplifies? And if you standardise, which Technology do you adopt?
Your decisions will also be affected by what transfers as part of the acquisition and what does not. For example, if an organisation has been carved out for sale, collaboration software licences may be retained by the selling organisation and so will need to be replaced; in many situations, the replacement will be the acquiring organisation’s software (and licencing) but if the acquisition is to be run autonomously or turned around and re-sold, then procuring separate licences may be more sensible even if the software is the same.
Preparation
Due Diligence
During due diligence you gather high-level information about the Technology in scope of the acquisition and its suitability for the operation of the acquired organisation, immediately after deal completion and in the longer term.
You also identify
security risks to be addressed
compliance activities you need to complete – eg acquiring additional licences, updating compliance bodies with new information and ensuring relevant officers are in place (eg for Data Protection)
any transitional support agreements that need to be put in place.
Leading up to Day 1
As a priority, you plan the implementation of the immediate security and compliance activities (described above) and any Day 1 technical changes, i.e.. those that need to be completed on or immediately after Day 1. These may be as straightforward as changing the legal wording on forms and email footers or federating collaboration software – or could mean replacing essential technology, which is not transitioning with the deal, along with any essential data transfer. These changes need close cooperation between the selling organisation, the target organisation, your existing Technology team and relevant partners on both sides of the deal.
In parallel, you finalise the transitional support agreements required to secure the continued operation of the organisation being acquired. As well as the costs and timescales related to ongoing operations, these will specify how changes to remove transitional support will be managed and funded.
And you start to develop plans for short term Technology changes and the changes required to deliver the agreed end state technology platform. This will include assessment of the impact of changes to licence requirements or Technology contracts and you should involve Procurement and Legal colleagues to provide specialist advice.
Everyone will have a view about what is important enough to be done as a short-term solution. You need to be able to navigate these demands – and understand the pros and cons – for example the extra cost of interim automation and impact on getting to the end state versus the impact of managing using semi-manual processes. Agreeing some underlying principles about what will or won’t be considered will help.
Day 1
Immediate changes
You are now officially one organisation and essential Day 1 changes need to be completed.
The negotiated Transitional Support Agreements are now live, and you need to establish and operate the agreed governance processes for them.
You will implement the urgent security and compliance activities you planned in the lead up to Day 1.
You will also need to start the implementation of the agreed essential short-term changes. There will continue to be a clamour for additional access, reporting and integration in the short term. Ensuring there is a clear understanding of what will – and won’t – be done as an interim change and why that decision has been made is essential to ensure you are able to focus on the wider integration plan. You may also need to remind people that colleagues in the “other” organisation may be able to access the data they need – or that accessing reports in two different systems is an acceptable temporary workaround.
End state planning
Alongside the urgent and essential interim changes, you will need to validate and update your integration plans to move to the agreed end state Technology platform. You will also need to start identifying and gathering the team (Business colleagues, Technology colleagues and key partners) you need to deliver the integration programme.
The scale of the change to be implemented will be affected by the approach to Processes (discussed in a previous article) and your Technology strategy.
Retain existing Technology
If the decision is for each organisation to continue using existing Technology, then the focus will be to ensure any cross-organisational requirements are completed. These are likely to be limited to information sharing and collaboration, consolidated reporting and central functions – e.g. Treasury.
As part of the Business-as-Usual operation, there will be the opportunity to explore potential improvements – e.g.by adopting Technology used in the acquired organisation if it will add value in the acquiring organisation and vice versa.
Standardise Technology
If the decision is to standardise to one organisation’s Technology platform, then there is more planning to be done. The first decision is to confirm which Technology will be adopted and then work with both organisations to develop plans for change.
It is important to be clear and transparent about why the decision has been made - for example, if the acquiring organisation is significantly bigger and already works on a standardised platform then this may be the most cost-effective approach or the one that will deliver integration most quickly. Or if the acquired organisation will be consumed into an existing organisational entity (e.g. operating company) then a single order to invoice system may be required.
You will also need to explain what the impact is likely to be. It may mean that some currently automated processes become manual because there is no equivalent software in the selected platform. Note - a project to add capability to the standard platform following integration can be considered, subject to a robust business case.
Adopt best of the best
If the decision is to adopt best of the best on a Technology-by-Technology basis, the organisation will need to complete an objective assessment of each Technology element in each organisation and from this information-gathering determine which platforms and solutions will be adopted going forward.
Work will also be required to determine how these will be integrated. Implementation then needs to be planned.
Conclusion
For a CIO, the hard yards to deliver the end state Technology platform happens after the deal is concluded. Delivery of that end state platform, as planned and budgeted for in the acquisition process, is central to the organisation achieving its target outcomes from the acquisition. The CIO will need to build the right team to deliver the requirements effectively and efficiently without putting the business-as -usual agenda at risk. To deliver against the business case, the CIO will need to ensure they have the wider support of the organisation to support delivery plans, fund the agreed changes and engage in the delivery process.
Whilst there will always be some cross-organisational Technology requirements, the scale of the overall Technology programme will be dependent on the approach taken – which will be driven from the Business and integration strategy and your existing Technology strategy.
There are increasing levels of complexity, cost and effort with the three main options:
retain existing technology in each organisation, standardise on one Technology platform adopt best of the best.
In each case, it will be important to engage key resources in both parts of the organisation, as well as key partners. Clear communication of decisions about the approach and the impact of those decisions will be key to a successful outcome.
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As practitioners, we understand what is typically most important to you; we will align our plans with what is most important for each deal opportunity.