7 Common Acquisition Integration Challenges IT Leaders Face

Of course, everyone’s impatient to start seeing the expected benefits from an acquisition, and you certainly don’t want to be the one that holds things up. But Merger and Acquisition (M&A) projects are notoriously difficult. For example, in a recent programme I led for a bank, there were 10,000 changes to collateral alone, and more than 5,000 changes to processes – and I was consulting on behalf of the selling organisation!

According to Harvard Business Review, the failure rate of M&A is anywhere between 70% and 90%. So, before your get started, here are the 7 most common challenges I’ve seen when helping organisations with acquisition integration programmes.

Oh, and I’ve sought some creative inspiration from the late, great American rock singer and actor, Meat Loaf – or at least his song titles!

The organisation hasn’t shared full and frank information with the acquirer

As an IT team who’s been asked to support the merger of an acquisition, the challenges start with trying to understand just what services there are, and of those, which are in-scope and which are out. You also need to understand what the desired business outcomes are – not simply the IT outcomes.

This is easier when the acquired organisation is a full merger. But if the acquired business forms only one part of another business, this significantly increases the complexity. Especially so when the divesting organisations is a competitor!

Where things get difficult is when the acquired organisation hasn’t shared full and frank information to the acquirer. Not just details of what technologies are in use, but specific detail such as the versions of software in use, and the underlying IT infrastructure. Frustrating, yes, but you can understand reservation from competitors in the early stages of negotiations.

What to do about it?

Assume nothing! Implement a data capture tool to quickly seek the key information required to expedite the design of your integration and merger programme.

In my experience, the most successful acquisition integrations follow this path:

• Undertake a due diligence study
• Develop your Merger and Migration Strategy – the what, the why (desired outcomes), and the how (a plan for how it will be achieved)
• Determine your required budget – in the broadest sense to include the required people, technologies and financial investments

There’s been a lack of investment in the IT systems of the acquired organisation

How likely in life are you to sink further money into something that you’ve already decided to sell? Chances are, not much, aside from perhaps the bare minimum. It’s no different when it comes to businesses being sold.

In fact, if anything, it’s even more likely as any investment may be wasted if the acquiring organisation is planning on changing IT systems. Plus, it’s relatively easy to simply sweat the assets. Whilst this makes a lot of sense to the selling organisation, it can create headaches for the acquirer.

What makes this more of a challenge is that the buying organisation may have assumed that the primary value is in the intellectual property. All else will be discarded over the course of the migration. Sometimes, however, this is not the case.

What to do about it?

Gain an understanding of the size of the problem ASAP. Once identified, you can then determine your remedial plan to bring systems up to your required standards.

This is a core element of any due diligence assessment. Understanding what is required – and who is required to do it – will be key elements of your strategy, supporting budget, and subsequent plan.

A significant challenge in M&A activity is the mismatch between organisations – for example, systems architecture and/or security standards. It still surprises me when two competing organisations have such vastly different IT systems, standards, and security protocols. There may be different tools in use, and the levels of security implementation will not always align easily.

There can also be challenges connecting networks between the two organisations. This can be down to many reasons such as physical constraints, technology incompatibility, security protocols and processes, and acceptable levels of implemented security policies.

What to do about it?

Overcoming these challenges typically requires a major programme of works, for example, fixing and patching operating systems and software before any connectivity can be put in place. It can often feel like a backward step to go forwards sometimes, but it must be done to ensure an effective transition.

You’ve underestimated the additional load to your existing infrastructure

Some Mergers can be large with the addition of more than 1,000 staff joining the Buyer organisation. In some cases, this can double the existing buyer’s IT infrastructure. This will require a major overhaul of internal infrastructure. Undertaking a major transformation programme of works prior to the migration could jeopardise the reliability of the current environment and put a strain on the existing IT infrastructure teams.

Despite this, a failure I see all too often is the failure to invest the time and resource in the basic elements of planning and communicating.

I’ve seen numerous organisations who almost seem frightened of briefing their teams on the journey ahead, instead choosing to focus only informing those who need to do something now. So, a crucial aspect of a M&A project is that there is a lot of detailed planning required if this is to be successful for both parties.

What to do about it?

Do your due diligence! Granted, this may not be that easy before the deal is done, especially if the organisation you’re seeking to acquire is keeping its cards close to its chest. However, as soon as you possibly can, get started on undertaking a due diligence review. The earlier you can understand the size of the problem, the sooner you can start addressing it, and the more likely you are to meet any time deadlines and ideally avoid unnecessary business interruption.

It will also be important for the IT function to take on specialists to help with the Design, Planning and Implementation activities for the Systems to be ready for Day One.

You’ve turned up with you’re Premiership team; they’ve provided their pub team!

In a mergers and acquisition environment the buyer is typically well resourced with a desire to succeed. It may look quite different on the other side as resources are more constrained in the acquired.

Reduced and overworked resources may compromise standards, focusing on a minimum viable solution rather than the most appropriate solution.

As the business charges towards a planned handover date, mistakes can occur as systems and processes are hastily put together. Testing becomes optional, and due diligence gets shelved due to time and budgetary pressures. The risk is failure on Day 1, once systems are expected to manage a full load.

What to do about it?

It is essential both parties ensure resource levels and investment in the project are effectively resourced early so that key activities can be identified, planned and executed in sufficient time.

Undertake due diligence and build your programme plan as early as possible. Ensure resource levels are aligned to the expected needs of the project, and be cognisant of the risk of burning out key staff members.

IT becomes a blocker

Imagine your mergers and acquisition project is racing along towards day 1, and the business is identifying more changes required to systems so that it remains on course for the handover. But the additional changes exceed what IT can meaningfully support. The risk is that the business views it as a roadblock to the completion of the business objective.

With pressure to get the deal done, the business starts to lose faith in the IT teams. The backlash can put the rest of the business backwards as IT resources are focused on the sudden demand for system support. This results in both the remaining part of the business and the Acquired business both losing faith in IT.

What to do about it?

This is unfortunately an all too familiar tale. Specialist resources become stretched to breaking point within the IT function, with demands for system transformations coming from all parts of the business.

There is a need for senior management to appreciate and support the IT function, helping prioritise the new demand for support, and communicating the impact to the wider business community.

Develop a Programme Office whose role is to assess the conflicting elements of demand and resource. Capture the demand in the form of changes. Determine the availability of resources and align projects to business priorities.

Nothing can happen until the contract is signed

Anyone who’s been engaged in M&A projects can appreciate that, depending on the scope of a deal, the migration period can vastly differ from a few weeks to many months, occasionally even years!

For large acquisitions in highly regulated industries, these inevitably take a long time. The buyer is necessarily focused on the business and intellectual property acquisition rather than the IT assets. Smaller acquisitions are often afforded the opportunity to undertake a lot of preparatory work in advance, resulting in a relatively short migration and warranty support period provided post transition.

The challenge for merger projects is that the sale can be aborted at any stage up until the actual exchange of contracts. Therefore, no systems or data will be transferred before that time.

What to do about it?

If possible, exchange test and sample data to enable the buyer to assess the state of acquired systems. The IT systems will need time to be migrated, and there will need to be a sometimes-complex set of agreements with Service Level Agreements (SLA) put in place to cover the agreed transitional services agreement period, whilst the systems and data are effectively migrated and ingested into the acquirer’s systems.

So there you have it – the 7 common acquisition integration challenges IT leaders face. Hopefully this article has broadened your understanding of the challenges that you may have to overcome.

If you’d like more tailored advice and guidance on how to tackle your M&A challenges, you can schedule a free chat with us here.