What IT Leaders Need to Know About Getting Mergers Done Right

Whether it's a shotgun merger or a planned acquisition, chances are you're not ready for it. Here's how to change that.

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According to FactSet, there were 295 mergers between U.S. companies in November, down 38 percent from the peak of 653 in July. During this period, the dollar value of those deals dropped 98 percent. A similar pattern unfolded during the last recession, which started in the wake of the 9/11 terrorist attacks and stretched into November 2002. The total number of merger transactions for 2008, as of late December, looked likely to drop about 32 percent, compared to 2007.

On the other hand, when mergers are driven by desperation (or, in the case of some financial services companies, the promise of a big tax break), things can happen suddenly. Whether or not you see a merger coming, you can increase the chances that you will be successful by being prepared.

For example, you might be able to make your systems more merger-ready by embracing service-oriented architecture (SOA), a network-centric approach to defining modular information services that can be recombined to create new applications. Because it anticipates the need for integration, SOA is supposed to make it easier to connect systems from two different companies so they can function as one.

"I think a CIO today really has to be planning and designing and developing their architecture to accommodate merger and acquisition activity," says Beery. SOA is "one good option" for pursuing that goal, he says.

Beard notes that SOA would be more useful if both parties to the merger had embraced that style of integration than if only one had. That's part of the reason why, if you can, it's so important to find out early what a merger partner's systems architecture looks like and how up to date it is, he says. Beard sees potential merger help coming from other recent technological innovations, such as software as a service and cloud computing, because the merged organization can more easily tap into an externally hosted customer relationship management application or storage utility than it can integrate in-house systems. "You can use these solutions and not have to bring them into a data center that may already be constrained," Beard says.

Deloitte's Blatman says the client who impressed him most with its acquisition prowess made technical architecture part of a broader strategy, which also involved developing several standardized "playbooks" for handling different sizes and types of acquisitions. "They asked themselves, 'If we're going to continue to grow by acquisition, what do we do with our IT infrastructure to make it acquisition friendly?'" he says. Among other things, the company's approach led to a decision to phase out proprietary software applications in favor of commercial packages. One reason: It tends to be easier to import another company's business data into a more broadly used commercial application than a homegrown one, Blatman says.

Put People First

Integrating technology is important, but it's not the main reason mergers succeed or fail, argues Seel of California Mortgage and Realty. "To state the obvious point that gets ignored all the time: Mergers are about people. I've seen that obeyed to great success and I've seen it ignored at great cost."

Other key factors Seel considers obvious but which "in the heat of battle we tend to forget" are how well the merger team bridges corporate cultures and pays attention to customer needs.

When Seel worked at Bank of America during its merger with Continental Illinois, he learned quickly how vehemently many at Continental Illinois opposed the deal. During a visit with the Continental Illinois team in Chicago to work on IT integration and related aspects of the merger, he identified one influential, midlevel customer service executive who was outspoken in her opposition. A key turning point in the merger process came when he, somewhat nervously, took her to lunch.

"I made her aware that she had enormous influence and that she had a choice of how to use that influence. It was about an hour-long conversation, and at the end of it we went into a meeting, and from then on she was talking about, 'Here's how we're going to make this work,'" Seel says.

Later, during Bank of America's acquisition of FleetBoston, Seel recognized that the IT staff had been given very little information about how they fit into the merged IT organization. To bring them into the fold, he asked them how they saw their role. "I asked them to tell me: What are you proud of? Tell me what you think you bring to the table. And they were still talking about that years later."

Of course, the problem with easing employees into a merged organization is that they already suspect, with good reason, that some of them will wind up losing their jobs. That can be a terrible distraction, says Steve Terry, CIO and senior vice president of customer operations with Beneficial Financial Group. "So what you want to do is find the keepers and the people who are going to be set loose," he says. "The sooner you do that, the sooner the acquisition is going to be successful."

Unfortunately, when everyone is under pressure to do more with less, you can't offer even the survivors very many assurances that their jobs will be secure for more than a few months, Terry says. But you should try to offer whatever conditional assurances you can, he says. "You may be able to say, 'This is the team for the next six months, and if we do everything we can to be successful—and we can do it—then there should be no more layoffs.'"

While Terry has definite opinions on how to manage mergers and acquisitions, Beneficial's strategy has been to avoid them. "We had some very significant conversations about how we pursue growth," he says. Their analysis of the cost of acquisitions led them to a strategy of organic growth through new products or geographies. "It turned out to be a good education for my peers to understand the cost of technology if we take on something different than what we have," he says.

In particular, he underlined the challenge that would come with absorbing another company's policy management system and possibly having to run it in parallel for years if they could not find a single system to model the logic behind both firms' insurance policies.

The business world would be a better place if that kind of analysis were more common, Terry says. "I believe the CEOs and CFOs who come to value IT's contribution as a deal maker or deal breaker will make much wiser investments of corporate capital."

Copyright © 2008 IDG Communications, Inc.

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