M&A deals are up 24 percent in the U.S. in 2014 according to CIO.com. There is no doubt that within this surge of activity, business leaders and private equity firms in Chicago are leveraging IT leaders to understand risks and highlight opportunities for synergy. IT leaders, such as those with the skill set of a CIO, have a trained eye to catch key details that a CEO or CFO might naturally miss.
The major IT risks are typically a few layers below where business leaders have visibility.
Understanding the risks and opportunities regarding the back office systems (ERP, CRM, BI, supply chain systems) and other general infrastructure (datacenter, storage, networking, cloud) is critical to maximizing the synergy and value of M&A deals. Equilibrium has seen positive results many times over by following this approach. Equilibrium has uncovered many critical and surprising risks in the due diligence phase of many mid-market M&A deals in Chicagoland and across the US. Some of the most interesting examples across many companies include the following:
- 7-year old hardware
- 16-year old digital phone system
- 10-year old software versions which is end-of-life
- Grossly under licensed software from Microsoft, ERP and other software vendors
- Ineffective management of outsourced or in-house staff
- Critical internal and external security holes
- Zero documentation and/or IT policies
- Recurring annual IT budgets being 20% of industry average
- Common recurring major outages which have not been permanently fixed
- ERP systems which do not fit the business well
Successful M&A deals rely heavily on thorough business planning including assessing the people, processes and technology of IT. This allows for prompt and accurate information gathering in the due diligence and planning phases which leads to effective execution during the integration/separation phases.
Equilibrium's M&A Deal Approach
Under Equilibrium's "IT Strategy & Planning" practice area based in Chicago, we have found it best to approach an M&A deal opportunity in 3 phases:
- Due Diligence - Between the LOI (Letter of Intent) being signed and before Day 0 (deal signed)
- Integration/Separation Planning - Between Day 0 and Day 1
- Integration/Separation Execution - After Day 1 (deal closed)
The skill set and experience required to complete Phases 1 and 2, differs slightly for that of Phase 3. The execution phase of an M&A deal requires a mature Project Management Office (PMO) to ensure that scope of the fast-paced and often complex integration and improvement projects are closed on-time, on-budget and with high quality (see Project Management Triangle at left). This ensures that synergies are rapidly captured, redundancies are removed, costly mistakes are avoided and Transition Service Agreement (TSA) costs are minimized.
Author: Todd Bey
MiscellaneousCIO.com - CIOs: Expand Your Skills With M&A
CIO.com - Top CIOs Get Deeply Involved in Merger Deals
CIO.com - M&A Mistake: Too Many CIOs Arrive Late to the Dance
Forbes.com - Why More Entrepreneurs Will Get a Phone Call Worth Millions
TheMiddleMarket.com - M&A News Website
Project Management Triangle