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.
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.
1. Consider the M&A Impact on Sourcing Scenarios During the Sourcing Strategy Phase.
As part of this process, M&As can be factored into the following steps:
When selecting service providers for medium- to long-term relationships
Several evaluation factors that are particularly critical for M&A are:
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
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.