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7 things to keep in mind during a merger or acquisition

Occasionally, if you're lucky, in a merger or acquisition, systems are looked at with an eye toward the company's long-term growth. Demonstrating this willingness to look for a solution that will enable the company to grow faster or become more efficient goes a long way in securing your future in the new company. Here are some things to keep in mind.

Occasionally, if you're lucky, in a merger or acquisition, systems are looked at with an eye toward the company's long-term growth. Demonstrating this willingness to look for a solution that will enable the company to grow faster or become more efficient goes a long way in securing your future in the new company. Here are some things to keep in mind.

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M&A in an IT department can be challenging. Typically, if there are two systems performing the same task, the winner is usually the company buying the other company. Exceptions to that exist such as a newer system that is still in a depreciation schedule, etc., but for the most part, the "acquiree" loses to the "acquirer."

Occasionally, cooler heads prevail and the systems are looked at with an eye toward the company's long-term growth. This, of course, is ideal. Demonstrating this willingness to look for a solution that will enable the company to grow faster or become more efficient goes a long way in securing your future in the new company.

The challenge is staying unbiased. Within the ERP space particularly, IT staffs can have specialists in Oracle or SAP who could lose their jobs if a decision goes another way. This makes staying focused on company benefit much more difficult.

Selecting which system wins should come down to the capability that the system provides. Many times this is easy. Where one company has a capability that the other does not, if the system proves valuable, it will likely stay on. Many times, entrepreneurial IT leaders will look at opportunities to upgrade. Step one in an M&A effort is to list all the capabilities of both companies from an IT standpoint.

Additionally, every IT department, whether it's admitted or not, has a problem child application or system. One where we typically joke that someone needs to go into the server room and trip over the power cord. When you have all the capabilities listed, look for ones that are upgrades. The ones that will allow you to use that 15-year-old HP 3000 as the boat anchor that it truly is.

Typically, but not always, a strategy exists that focuses on why the merger or acquisition was going forward. Knowing this will also help with your decision-making process. Sometimes, a company will buy a competitor to increase market share. Other times, the acquired company adds a new desired business capability. Understanding the motivation will help you decide what is important versus what isn't.

As an example, with a pure market share acquisition the focus will be on economies of scale and cost reductions, typically by way of eliminating redundant processes. On the new capability example, the systems and IT capabilities that support that "differentiater" should be propped up and sold to the acquiring company even after all the paperwork is signed.

If there are truly unique differences between the two organizations, you have to constantly wear your sales hat. Negotiation is key. You have to work through the other company's biases as well as make sure the best system for the job survives. This is a constant battle and you have to be continuously vigilant to make sure that the decisions made are carried through to fruition.

Where capabilities are the same between systems (such as ERP) typically it comes down to costs. One system may need fewer employees to support it. Another may have lower maintenance costs. A five-year thumbnail proforma will help both sides look at the systems objectively. But other things to consider:

  1. Level of customization. A lot of spaghetti code can make something a bear to support over the long term. Usually, you can quantify these costs by looking at contract services associated with the system, but sometimes, you have to rely on your gut. What will your QA process look like every time there's an upgrade? will the process be seamless or will it be a nightmare?
  2. Openness of the system for add-ons or developing additional capabilities. Can it run on MySQL or Linux?
  3. Level of integration. A deep and broad-reaching integration of a system can be a nightmare to unravel, especially if it's tied into systems that you may be keeping. If a data warehouse is a strategic capability that the ERP is a significant publisher to, that is a key determinant.
  4. Training and adoption expense. How long will it take to get the other company up and running on the new systems? How much will that cost?
  5. Vendor/Partner selection. Many of the systems that have been selected at this point will determine the partner or vendor. However, with the new company size and potential volume, you can negotiate new contracts and terms. A candid evaluation of a partner is key. Even a great partner might be overwhelmed by the size of the new entity. Don't set these guys up for failure. Cut them loose and save your reputation by not recommending them. Others will be willing to renegotiate to avoid losing the business. These can be some early wins after M&A activity settles down.
  6. Employee selection. This is the toughest part. System selection may make some of the decisions easier. But you need to look after your rock stars. If you have to outplace one of your specialists because the new company is going in a different direction, bend over backwards to get this person plugged into your network and spend the time to get the person settled. Employees not let go because of a system change become another sales effort. If both sides can identify their top 20% of employees from a a value contribution standpoint and their bottom 10% (taking into account potential for junior staff), you have the opportunity to really build a stellar team. Typically, if you did your hiring right, your top 20% are the type that can adapt to a changing environment. Fight hard for these folks so they can keep their jobs.
  7. Your job. If you're with the acquiring company, you have an 80% chance of keeping your job. This is typically based upon who you currently report to and if the new direction of the company is in line with your skill set. Otherwise, an aggressive IT leader on the acquired team can demonstrate his value through this process and win the brass ring. Sometimes it works out that the IT leader from the acquired company can move into a CTO role or architect role depending on skill sets, but typically, there is only room for one CIO. If they don't select you, hopefully you demonstrated your value through this process and you have some senior executives fighting the good fight to get you placed within their network

In summary and in order of importance:

  1. List all capabilities for both companies and note which are "differentiaters" and which are redundant
  2. Look for opportunities to upgrade
  3. Sell, sell sell. Sell capabilities, services, and employees constantly and vigilantly
  4. Do a cost analysis on redundant systems to help you objectively get to which system wins.
  5. Perform a Partner/Vendor evaluation
  6. Be realistic about employee selection
  7. Look out for yourself. Hard work always pays off, one way or another.

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