Merger & Acquisition Due DiligenceIT Alignment & Planning Framework
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Table of Contents
Introduction 3
Merger Key Considerations 4
Merger Strategy and Measurement Framework 5
Critical Success Factors Checklist 6
Merger Planning Process Overview 7
3 Key Steps for Success 8
Sample Merger Program Plan 10
Technology Challenges – Amplified in a merger situation 11
Challenges that must be addressed in a merger 12
Detailed Planning 13
Prioritization & Speed 14
Cultural Merger 15
Retaining Talent 16
The Litcom Approach 17
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Introduction
Mergers & Acquisitions (M&As) are among the most intense and challenging activities in business. Managing the IT integration risk associated with a merger has become a major component in determining the ultimate success or failure of M&As. Expectations regarding cost savings and economies of scale often focus on IT. In fact, IT plays a critical role in determining how effectively the merged organization is able to integrate processes and people, as well as deliver products and services to internal and external consumers.
Studies have indicated that while numerous M&As have fizzled for various reasons, a major reason is that the CEO did not bring the IT department on board early enough, mainly due to a lack of understanding of the important role that IT plays in M&A deals. Successful M&A deals depend on strong IT backed by knowledgeable IT staff who comprehend the subtleties of these sorts of arrangements, can perform appropriate technology due diligence and can efficiently arrange a post-merger integration project. With sufficient advanced notification and proper involvement in the M&A process, IT can deliver enormous value and help to ensure a successful transition.
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Merger Key Considerations
What roles should key constituents take in the merger?
What will merger success look like?
What is the merger timetable?
• The Executive• The Steering Group• The Program Office (e.g. passive versus proactive)• BU Managers } who is accountable • Project Managers } for prize delivery?
• In three months?• In six months?• In 1 year?
• Milestones (Day 1, First 90 Days)• What will be communicated, how and when?
What principles will we apply to the merger and how will we
communicate these?
• Minimum organizational disruption• Appointments by merit; not organizational history• What is out-of-scope initially?• Degrees of freedom for operational managers?
What are the “must do’s” for the short/medium term?
• Key challenges focused on options of a more fundamental nature (taken off-line)
What is the purpose of the merger?
• How does it relate to our strategy?• What level of merger/independence is intended/appropriate?• To what extent is re-engineering appropriate as part of the merger
process?
Below are a few key considerations that must be contemplated prior to any M&A transaction.
Merger Strategy and Measurement Framework
People Commitment
Strategy/Goals
Balanced Scorecard Measures
Growth &Innovation
CustomerSatisfaction
Process Quality
Financial
Critical Success Factors (CSFs)
Clarity on Measures for Success
Resolve to take tough decisions
• Merger or acquisition?
• Operating Model (balance growth/cost reduction priorities)
• Customer rationalization and prioritization
• Head Office consolidation
• Accountability for prize delivery
• Regulatory requirements
• Branding and house style
Clarity on Merger Strategy
Need for
autonomy
Need for Merger HighLow
Low
PRESERVATION(Boundary
Maintenance)
High
ABSORPTION(Boundary Dissolution)
SYMBIOSIS(Paced Capabilities
Transfer)
• Product/service portfolio alignment
• Management of risk
• “Keepers and leavers”
• Reward and remuneration
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Critical Success Factors Checklist
A key basket of non-financial performance
measures drives 35% of the externally perceived
value of the merged entity.
“Measures That Matter”
Identifying and initiating the 6 to10 high impact merger projects early is
critical.
Half a dozen projects deliver most of the value
Focusing solely on operational merger will only deliver short-term
tactical value
Long-term value comes only from strategic merger
Mergers often fail to deliver full value because the new entity does not grasp the
value creation opportunities as well as focusing on
value capture.
Optimizing business performance
Merger success is not about having the perfect
strategy; it is about delivering on your
promises to all your stakeholders.
Delivering on your promises
The key prerequisite of success is management
having the resolve to make the hard choices at
the right time.
Making the tough decisions
A merger can be an energizing catalyst to
radically improve performance and
motivation across the new entity.
“Seize the day”
Clear
Vision & Targets
Strong Leadership
Sufficient Resources
Prioritization
and Speed
Customer
Focus
Detailed Planning
program ManagementRisk Management
Performance Tracking
Cultural
MergerCommunication
Change Management
Retain Key Talent
Business
Accountability
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Merger Planning Process Overview
Merger Strategy & Shared Vision
Program Planning & Start-up
Design & Implementation
Project Team Planning
Process Optimization
Day 1 Day 90
Organization Optimization
Systems Optimization
Organizational Realignment
Asset Rationalization
Product & Customer Realignment
Core & Support Process Realignment
Systems Merger
Strategic Value Analysis & Target
Development
Evaluation Analysis
Target Strategy
Structuring & Negotiation
Due Diligence
Transaction Stage
Legal, Tax, Regulatory Support
Target Search & Selection
Strategic Vision and External Option
Identification
Day 1 Operations
Close
Strategy/Business Planning
Transition Planning
Strategy
Transaction
Transition
Strategy Design & Implementation
Optimization
Program Management
Communication and Change Management
Merger Program Management
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3 Key Steps for Success
One: Collect requirements and assess any gaps in IT proficiencies
The primary consideration in merger integration normally happens throughout the first (or due diligence) stage, when IT must foster an understanding of all technological requirements created by the merger. This begins with recognizing requirements inside the IT department itself. CIOs need to acquire a good understanding of the IT assets on both sides of the transaction to determine how the two organizations can best fit together, where any potential cooperation might exist, and where integration risks may occur. This process necessitates a survey of IT infrastructure and a structure for ensuring continuity of essential resources. Areas of examination include:
• Hardware, software, and network systems;• Enterprise and departmental application and data platforms (e.g., ERP, CRM systems, etc.); and• Corporate programs for specific lines of business, products, services, and vendor platforms.
Two: Prioritize Initiatives
Given that IT resource availability may be decreased throughout the merger, technology leaders must be systematic in assessing how resources are best positioned to help current operations while supporting the merger or acquisition activities. When IT is included in the process of integration early on, coordinated effort with the business teams can occur to guarantee projects are appropriately prioritized.
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3 Key Steps for Success(cont.)
Three: Create an integrated Implementation Road Map
Once CIOs have identified priorities for both the IT department and the new corporate structure, they can convert this list of initiatives into a road map, including sub-projects, detailed timelines, and contingency plans. The roadmap will likely uncover redundancies with the prioritized activities in addition to key gaps in the IT proficiencies required to complete them. A well-constructed roadmap should incorporate a plan to address those shortfalls. Furthermore, it should emphasize imperative conditions and success factors for each of the key steps discussed.
Because IT is so critical to an organization’s success, fruitful merger and acquisition integration facilitates close alignment of IT and the business side of an organization before, throughout, and after the transaction. This means that IT must correspond early and regularly with the business to ensure a balanced perspective of the new organization and a careful understanding of its capabilities.
Sample Merger Program Plan
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Supplier,Product & CustomerRealignment
Target Day 1
Identify top performers/ develop selection processes
Consolidate Organisation
Conduct Launch Mtg
Assess accounting/finance principles
Develop & Baseline program master plan
Design day 1 reqts
Risk and Issue Management
Progress Tracking & Status Reporting
Master Plan Management
Value Tracking
Asset rationalisation
OrgnAlign-ment
Core and supportprocess Merger
Establish Bus A current business baseline
Establish Program Office & Infrastructure
Communication & Change Management
Merger Team Support
Identify Information
sharing constraints
Develop prioritised
schedule for Day 1
Produce business
orgnprinciples
Assess business critical issues/risks
Rationalise Assets
Ph
ased
Lau
nch
of
Po
st D
ay 1
Te
ams
an
d D
ay 1
cu
tove
r
Assess Consolidation Requirements
DAY 90Steering CommMtg
Steering CommMtg
Set up clean
teams and process Establish Bus B current business baseline
Implement control/co-ordination process and reporting structures
Confirm synergy model and measurement framework
Business sign-off
Bu
sin
ess
Re
qts
De
fnFi
nan
ceH
RO
ps
Co
rp S
erv
ices
Co
mm
s
Develop finance contacts list
Identify key resources and retention strategy
Co
nd
uct
act
ivit
y w
ork
stre
am k
ick-
off
se
ssio
ns
and
de
velo
p a
ctiv
ity
char
ters
Initiate and maintain weekly pre-day 1 communications process
Develop commnstrategy and
principles
Define Identity andbranding brief
Develop high level processes
Document current legal structure
Assess and secureresource reqts
Develop internal/external commn processes/mechanism
Assess approach on trng,benefits,perf mgmt etc
Consider regulatory reqts and set up forum
Establish IT team interfaces
Develop policy for Treasury Mgmt
Develop reporting reqts
Confirm synergy analysis
Co-ordinate agenda for FY
reporting
Develop joint statement on
pensions
Develop interim IT solutions
Develop regulatory reqts
Determine security reqts
Define Intntl Reqts
Co-ordinate Day 1 preparation
Wkshp sponsor discussions
Confirmday 1 scope
Top executive pre-positioning
SystemsMerger
Assess current orgn
structures and design
new business
Co
nd
uct
de
sign
wo
rksh
op
Conduct employee surveys
Identify redundant or obsolete roles
Assess knowledge,skills, and competencies reqd
Determine target systems
envt and selection criteria
Develop systems consolidation
plan
Create development
systems infrastructure
Develop conversion
applicns and interface
reqts
Conduct detailed
current state assessment
Assess change readiness / risks
Determine people/systems impact
Develop detailed future state
Develop implementation
plan
Collect and document
current asset data Conduct asset rationalisation
analysis
Determine people/process impact
Develop asset rationalisn/disposal strategy
Developimpln plan
Assess channels,products
and customer needs trade-offs
Develop pricing strategy
Analyse and rationalise supplier base
Define consolidated channel strategy and product lines Define
mrktg & sales
support reqts
Pro
gram
Mgm
t
To ensure success during an M&A transaction, a plan, such as this one, is a necessity. While every step may not be required, they must all be considered in the planning process.
Technology Challenges – Amplified in a merger situation
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TechnologyLeadershipChallenges
New Technologies
Competitive PressuresChanging Business Priorities
Cost Reduction
Skill Shortages
• Languages, mobility
• EAI, B2B, web services
• Portals, Digital Content etc.
• Internal groups demanding changes
• Competing organizations
• Faster to market
• New markets
• Emerging eBusiness strategies
• Responsive to change (nimble)
• Budget cuts, RIFs
• IT governance challenges
• Consolidations
• Talent retention
• Better technology
• Vital production systems
• Hiring / retraining
New Methods & Standards
Customer Satisfaction
• Changing business processes
• Iterative vs. Waterfall
• Quality Management (ISO, CMM)
• Software Productivity
• More knowledgeable customer
• Demands for more information
• Faster requirements realization
• “Integrate it”
Systems Integration
• Heterogeneous systems
• Heterogeneous data sources
• Heterogeneous technologies
• Data consolidation issues
• Security consolidation
Post Merger
• Alignment & Synergies
• Architecture & Application Rationalization
• IT Organization & Operating model
There is no shortage of the technology challenges in an M&A transaction which is why the IT leader must anticipate and act in a timely manner.
Challenges that must be addressed in a merger
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How to ensure that synergy & value targets drive merger activities;
How to deploy scarce resources to deliver maximum benefit;
How to demonstrate merger progress & benefits quickly to retain support; and
How to achieve ongoing senior management support for the merger plan.
How to quickly create a stable IT platform to support day to day operations;
How to deliver benefits to the business quickly enough to build and maintain credibility; and
How to continuously re-prioritize based on delivering merger value.
How to identify the staff critical to the success of the merger; and
How to win the hearts and minds of critical staff to ensure that they stay.
How to manage and resolve cultural differences;
How to establish the desired post-merger culture; and
How to manage resistance to the new ways of working and organization.
Detailed Planning
Prioritization & Speed
Cultural Merger
Retaining Talent
To address the various challenges, sets of questions must be considered and action plans developed to ensure the ‘right’ answers are provided for each of these four categories. Success factors and potential solutions are outlined on the following pages.
Detailed Planning
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How to ensure that synergy & value targets drive merger activities;
How to deploy scarce resources to deliver maximum benefit;
How to demonstrate merger progress & benefits quickly to retain support; and
How to achieve ongoing senior management support for the merger plan.
Challenges
Success factors
Plan as much as possible before the deal is closed;
Develop distinct plans for the various phases of the Merger and develop a route map;
Co-ordinate and formalize the timeline for organization, people selection and facilities migration;
Ensure that there are sufficient resources to deliver the plan
Assign scarce resources to priority initiatives
Exercise strong leadership to ensure that the plan is managed and delivered
;
; and
.
Solutions
Identify opportunities for cost reduction & revenue growth;
Take time to design the most efficient Merger process possible;
Define specific goals for the Merger of IT environments (e.g. reduced costs, increased network. coverage etc.);
Map IT infrastructure commonalities and deficiencies; and
Build a tool to track benefits.
Prioritization & Speed
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How to quickly create a stable IT platform to support day to day operations;
How to deliver benefits to the business quickly enough to build and maintain credibility; and
How to continuously re-prioritize based on delivering merger value.
Success factors
Prioritize design & implementation efforts to achieve majority of intended value early;
Resist urge to standardize approaches and processes unnecessarily;
Continuously prioritize based on source of integrated value;
Understand implications of prioritization decisions; and
Balance speed with the requirement to provide a stable platform.
Solutions
Develop critical path for the IT integration program;
Consider all aspects of the IT Merger (organization / locations, applications, networks, knowledge bases, etc.);
Define decision gates and rolling planning where appropriate; and
Design & prioritize IT Merger initiatives in accordance with merger objectives.
Challenges
Cultural Merger
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How to manage and resolve cultural differences;
How to establish the desired post-merger culture; and
How to manage resistance to the new ways of working and organization.
Solutions
Define the desired to-be culture and implement initiatives to create this culture;
Communicate the new cultural values actively and consistently to all constituents through several two-way channels;
Pre-select a team of influential executives from all organizations to lead merger initiatives and demonstrate executive buy-in;
Make the critical decisions and communicate them openly to avoid low morale and a gradual loss of faith in the leadership team;
Visibly co-ordinate mobilisation effort between all organisations, working at all levels, to avoid the ‘them and us’ syndrome;
Involve people in setting the new direction - especially cynics; and
Actively communicate the success and value of Merger initiatives to all staff members.
Challenges
Identify and proactively deal with cultural issues;
Kill any “we-they” attitude;
Reinforce the “jointness” of the deal by including managers and employees from both entities in all events & activities; and
Balance team design to reflect natural legacy strengths and weaknesses.
Success factors
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Retaining Talent
How to identify the staff critical to the success of the Merger; and
How to win the hearts and minds of critical staff to ensure that they stay.
Success factors
Identify and communicate with key individuals (or “keepers”) early - give them significant Merger roles;
Avoid under committing to key employees and over-committing to non-key employees;
Identify rising talent in both organizations;
Identify critical IT infrastructure and applications “keepers” from both organizations;
Identify Merger & operational IT resource requirements; and
Design and implement programs to retain key employees.
Solutions
Provide Merger training and cross-training for all staff;
Manage emotional & political implications of the merger - avoiding low morale & subversive employee base;
Generate enthusiasm & commitment at all levels of the organization;
Develop a communications plan addressing internal and external constituencies which anticipates questions & concerns; and
Involve “keepers” in Merger initiatives, publicizing the success of the initiatives and the value to the organization.
Challenges
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Litcom Approach
How does Litcom’s IT Due Diligence give you an advantage?
Litcom has developed a comprehensive IT Due Diligence Program leveraging our detailed IT Assessment methodology. As part of our IT Due Diligence process, we address our client’s requirements to understand an acquisition target’s IT environment. Litcom will review existing IT strategies, planned initiatives and commitments, a full breakdown of all direct and indirect IT costs, the current IT organization structure and resource skills, the technology infrastructure platform and environments, the application portfolio and any exposure to vendor / third party obligations. The benefits of our business-oriented IT Due Diligence Assessment approach include:
Litcom provides Merger & Acquisition IT Advisory services that enable our clients to understand the full IT risk profile of M&A transactions and determine the most effective way to integrate new organizations. We deliver IT Due Diligence services as part of an overall deal analysis and IT Post Merger Integration services upon completion of transactions. For more information, contact us at: [email protected]
• Thorough understanding of technology-dependent business objectives.• An inventory of all IT priorities, organization and capabilities, processes, and costs including all existing and
planned contractual obligations. • An IT Acquisition Risk profile including mitigation strategies and associated high level costs for the
recommended IT initiatives and priorities.