THE EUROPEAN CONSOLIDATION BOARD
European Consolidation Board for Foreign Industry (ECBFI)
SYSTEM INTEGRATION FOR COMPANIES AT POST MERGER
ECBFI & POST MERGER INTEGRATION FOR A CFO
The ECBFI note that the impact of mergers and acquisitions on outsourcing and services relationships is huge and the opposite is also true. Evidence shows that leveraging sourcing best practices before, during and after M&As can make the difference between success and failure.
The impact of M&As on outsourcing & service relationships is huge, often due to organizations' different cultures, styles, sourcing strategies and service providers.
M&A-related synergies can cause providers to lose money and the level of change required can be unprecedented, as well as challenging providers' capabilities. Vice versa, outsourcing and service relationships can either support the execution of an M&A deal or derail it. Applying sourcing best practices before, during and after M&As can make the difference between success and failure.
- CIOs, CFOs and sourcing managers should proactively weigh the potential for M&As into their IT service sourcing strategies and contractual relationships to maximize the benefits for their enterprise.
- When involved in the different stages of an M&A deal, company leaders must follow five main best practices:
- Consider the impact of the M&A on sourcing scenarios during the sourcing strategy phase, either as key objectives or risks.
- Consider M&A-related criteria when selecting service providers, to be ready for change.
- Negotiate or renegotiate M&A-friendly terms and conditions in your contracts, for flexible contracts.
- Guide your services sourcing relationships across M&As, to leverage provider competition and additional opportunities.
- Factor outsourcing realities into M&A deals, such as evaluating sourcing clashes, time, cost and risk.
M&As present a challenge in themselves as large-scale business transformations with a major and often critical impact on the business processes, IT systems and resources deployed within an organization. The impact on each party's IT service sourcing strategies and contracts depends on the type of the deal (merger-of-equals or acquisition), the integration approach adopted (stand-alone, absorption style or best-of-breed) and the post-integration IT synergies expected (see Note 1).
During the due diligence phase, acquiring CIOs, CFOs and sourcing managers need to carefully assess the risks, costs and timelines of post-integration IT service sourcing contract modifications. While tangible assets, such as data centers, servers, desktops or networking equipment are usually properly captured and evaluated during due diligence, intangible assets, such as software licensing agreements or IT services sourcing contracts are often overlooked or their impact on integration costs and efforts is underestimated.
POINTS to PONDER
1. Consider the M&A Impact on Sourcing Scenarios During the Sourcing Strategy Phase.
- When the M&A is already an explicit part of the business strategy, then M&A scenarios must be factored in as part of the key business goals or objectives the sourcing strategy is designed for.
- Even if the M&A is not part of the current business strategy, it must be factored in as a risk during the risk analysis associated with the sourcing scenarios.
As part of this process, M&As can be factored into the following steps:
- Set context and objectives. When M&As are part of the business strategy they must be included in terms of business objectives.
- Conduct scenario planning. Sourcing models particularly suited to support M&As can be included in terms of available options.
- Analyze risks. M&As can be included as a threat to an alternative sourcing scenario to help select the most adequate sourcing approach, taking into account hostile M&A.
2. Consider M&A-Related Criteria When Selecting Service Providers to Be Ready for Change
When selecting service providers for medium- to long-term relationships
Several evaluation factors that are particularly critical for M&A are:
- Cultural compatibility. Will the provider consider an M&A-related change in service scope or timing as an opportunity or a problem?
- Industry vertical expertise. Does the provider understand the client's specific vertical industry sector to be able to help in the merger of two different organizations?
- The ability to access changes and integrate the different architectures, applications and data structured
- Management capabilities. Can the provider's management team scale services up and down to support the client's M&A plans?
- The reference check phase and the M&A due diligence phase, are very important to verify providers' claims and drill down on specific requirements related to M&As.
3. Guide Your IT Services Relationships Across M&As to Leverage Additional Opportunity and Competition
Outsourcing and IT services relationships and contracts in place at the time of a M&A deal are either a big problem or a useful tool to handle the changes and challenges associated with the M&A integration process. The outsourcing management phase is actually about guiding, evolving, supporting, executing and checking the multiple activities, programs and services delivered in a multisourced environment and across relevant business changes
- Demand and service management
- Program and relationship
- Performance and contract management
4. Factor Outsourcing Realities Into M&A Plans and Evaluate Sourcing , Time, Cost and Risk
When your business evaluates M&A opportunities or receives proposals involving M&As, the timely and careful evaluation of IT-related benefits, risks and synergies can make the difference between business success and failure.