How to stop IT woes hurting your M&A plans
Business Management

How to stop IT woes hurting your M&A plans

IT mergers and demergers are in the news these days as Dell attempts to pull off its audacious, record-breaking acquisition of EMC and both Symantec and HP split themselves into component parts. Outside of tech itself, M&A generally continues apace with global M&A value up by an expected 38% this year to over $4 trillion, according to Dealogic, despite some signs of a recent decline on fears of rising interest rates. Over a third of the total is constituted by deals valued at over $10bn - again up sharply on previous years.

So the stakes are high but what happens to IT when companies come together? IT is the guts of many modern organisations and yet it remains a complex and convoluted area. How do you bring together already disparate systems with those of another company without derailing progress?

I spoke to Gary Oliver, CEO of Blazent, a California-headquartered company that specialises in making enterprise data accurate. A veteran of service management at companies like Remedy and Peregrine, Oliver has also seen life on the other side in IT management roles at Visa.

 

What are the major challenges with IT integration when mergers and acquisitions take place?

It really starts with understanding what you have in terms of infrastructure, applications and services and where your contractual and financial obligations are. This visibility is key so that executive management has the information needed to make integration decisions, look for synergies and to manage costs. Also, many companies outsource portions of their IT so there is a need to understand the many terms and conditions and clauses and penalties for termination. All big companies going through integration have the same challenge: how do you get that central view of governance and risk?

 

And then of course you get crisscrossing systems and decisions to make over which system, belonging to buyer or seller, wins out…

You’ve got service management, applications, ERP, systems management, database [and so on] and both parties will have their own flavours of each of these that do essentially the same thing, which means lots of systems and tool overlap. And from a business continuity perspective, you have to understand how all of these systems and infrastructure are related and dependent from a business services perspective. Only then can you start to look at options on how to rationalise costs while ensuring the services continue to operate.

 

Some software vendors aren’t exactly helpful in terms of supporting their customers’ needs to change, especially if they are being canned…

You will have terms for cancellation of contracts and licence agreements and in some cases penalty clauses for ending service provider relationships early. You need a transition plan and you need to be ready to negotiate. The vendor being terminated is probably not going to be happy so they’re going to want to extract that pound of flesh before they lose the business. I saw one example recently where the company’s plan was to cut over and move to another supplier at the end of a certain period. They didn’t get there in time and had to go back to negotiate for an extra year of support from the vendor being replaced. You can imagine that was an expensive conversation.

 

How do you make decisions about how you rationalise post-merger? What’s best practice once you’re getting to the knotty parts and the big decision of who and what stays?

Having been through some of this in the past, both on the provider side and running IT, it’s easy to underestimate the total effort. You can’t be completely democratic, otherwise the timeframes and costs for integration will be too expensive. If you allow what I like to call ‘the right of infinite appeal’, where the decisions keep getting questioned and nothing gets implemented, that can kill an integration project. It’s the nature of the beast that you typically have two great CIOs, their hand-picked lieutenants, great employees and they can’t all keep the same jobs that they had in the standalone company. In some cases, the team of the company doing the buying will tend to end up in the roles, but there are also cases where part of the allure of the acquisition is an extremely strong team that can fill holes in the parent organisation, essentially where they are also buying a management team. When the best person is selected for each position regardless of where they came from, it can send a very positive message to the rest of the employees and help to retain the best and brightest.

 

Do you think tech companies have a better chance of getting IT integration right? I’m thinking of Dell-EMC, for example…

I would say so: helping companies run effectively using technology is their core business so they have much expertise in house, but they still have all the same challenges when two large companies are brought together. This is a very big merger. In many cases, you also have the challenge of positioning products that might overlap in the market. In these cases, much care must be taken to position the solutions so that current and future customers understand the roadmap for the combined company and whether they should continue to invest in that particular product line or whether it will be replaced over time. If this is not done well, customers will hold off on new spending until the product path is clear. Pricing, channels, and go to market models also come into play. Where the solutions are highly complimentary and do not overlap it becomes an opportunity to offer a differentiated solution to the market and accelerate revenue.

 

Are the challenges in splitting up companies the same as M&A? I’m thinking for example of the bifurcation of HP and the split of Symantec and Veritas…

In many ways, yes. Instead of reducing duplication, they’re having to split and create independent companies with infrastructures and services from ERP and HR systems to sales force automation to all of the internal process and automation to support product and business processes which will allow the companies to operate standalone. Add to this the challenge of creating the organisations that will support each of these companies – a massive undertaking.  Like M&A integration, it all starts with complete visibility and understanding of the current infrastructure and services and how they are being used, who owns them, and only then can they begin to plan to replicate as appropriate. This all has to take place in parallel so that these systems are ready on the day the company starts to operate as two independent entities.

 

What about when companies combining are particularly distinct and have their own business models and cultures? Compaq and Digital in the late 1990s is an example that comes to mind…

An example of this for technology companies might be where one organisation sells a complex solution in a very consultative way to the executive team and CIO and is very relationship oriented, and the other company might have more of a commoditized ‘churn and burn’ fast sales approach where decisions are purely feature and priced based and it is a volume business with tight margins. The cultures of these companies can be very different which can make it more challenging to integrate teams, skills and processes. I went through one myself where one company was selling seven-figure deals and the other company was selling departmental deals for five figures a pop but when you added the lifetime value of the customer, the second one was doing more revenue per customer. It was a merger of competitors and the positioning of the product lines and integration of selling models and cultures was very difficult.

 

Dell has selected former Lenovo COO and AMD CEO Rory Read to sort out the Dell side of the EMC deal. How important is retaining the right people to figure out the integration?

It is very important. In many cases, even if the company does a lot of M&A, they’ll have a mixed team of integration specialists and M&A consultants to help with the planning and execution. The board or CEOs will determine which senior execs will fill which top roles and then they will determine the next layer and the next etc. Given human nature this is always challenging because the same people you’re asking to do the integration are also going through this process themselves. In nearly every case, there are two capable people filling similar roles in each company. The key is to be transparent and make clear and decisive decisions so that the organisation can get on with the business of integrating and focus on moving the business forward and so you don’t lose good people in the mean time.

Depending on culture and CEO, you have some companies where the CEO is very hands-on in every decision and others where the culture is ‘hire the best people and trust them to make the best decisions” where the CEO focuses on just the top-level issues. There are certainly trade offs to each approach. By delegating some decisions you can parallel-process and move very quickly. 

 

ERP integrations must be particularly thorny… Do deals ever fall apart or M&A deals fail to work based on an inability to find a working new ERP model?

I’ve not seen deals fall apart because of this but the ERP system is a critical backbone of the organisation and a big undertaking. Lots of companies will continue to run individual ERPs in parallel and then cut over when the processes are integrated and when the integration testing is complete. In the case where the companies are in highly regulated industries, it makes it especially challenging to make sure the combined company reporting and compliance are in order from front-end sales and ordering to the backend financials.

 

M&A among IT vendors used to be considered a voodoo that few knew how to pull off. In the last 10 years it’s as though M&A has become a more refined and predictable business. Is that the case?

Some are very good at it and some companies are known as places where good companies go to die when acquired and they tend to have an immediate brain drain because they did not make it clear to the employees of the acquired company how they will play in the bigger entity. The best have a repeatable playbook and everyone knows the process and roles to play and it’s very impressive to watch the way they execute deal after deal and they tend to drive a lot of strategic value from many transactions.

An example of where things did not go well was one $10bn company where every top executive from the company being acquired was replaced in their role by the acquiring company. To me that was a worst-case example: there was no determination for who had the most applicable skills, and eventually most of the acquired executives left and the deal turned out to be a bust. Customers felt the result of this and revenues fell dramatically. The best scenarios are where the acquirer really sees it as an opportunity to strengthen the team and goes to the extra effort to find roles for the most talented of the staff. An example of this is a multi-time early-stage CEO whose company was acquired by IBM and everyone thought he would likely not stay long but he went on to play very significant roles in the company and brought an innovative start up mentality to the company.

 

Blazent approaches all this from a ‘get the data right and good things will follow’ perspective…

Right, our customers tend to be the largest companies in the world with significant IT infrastructure and global reach and the service providers who provide services to these large enterprises. Regardless of M&A or splitting a company up, our thesis is that enterprises just don’t have the visibility they need to make confident decisions because IT typically buys many tools for very specific things like antivirus, asset management, ERP, operations or financial management and while those tools are very good at what they’re meant to do, they’re existing in siloes. You don’t have complete visibility across the enterprise and the data is inaccurate or incomplete. Blazent solves this problem by bringing all the data together for complete visibility with context.

For a company trying to prepare themselves for M&A it becomes doubly important to have this visibility as the basis to move forward with integration and to make good decisions based on the best data.

 

Is it a problem of accreted systems, dirty data, different software platforms and versions, hardware, changing data models or all of the above?

All of the above. For example, we’ve seen large companies with 300 servers that weren’t backed up on a regular basis and if they go down the whole company goes down. We saw an outsourcer managing an entire floor of a data center for a customer and the services were never billed for because the asset management system wasn’t connected to the billing system. We’ve had a customer that with Blazent found 30,000 devices connected to their global network that they did not know about. These are all companies that spend billions of dollars on IT but because of siloed data they could not get the visibility that they needed. These are very typical examples of the value we bring that impacts operations, service management, governance, technology business management, audit, etc.

 

It’s funny but part of the rationale for Dell-EMC was that companies will buy more from technology hub suppliers. Are we ever going to get rid of the siloes?

We believe that IT organisations will look to source the best models for delivering key services to their clients and these delivery options will vary by service or application and will span hybrid cloud, SaaS delivery and in many cases outsourced business processes. The typical CIO will leverage many of these combined options to deliver cost effective and agile IT but will still be required to have visibility across the entire enterprise for good governance, security, service management and financial measures. This will require the ability to bring all the data together across these siloes in context for effective visibility and decision making.

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Martin Veitch

Martin Veitch is Editorial Consultant for IDG Connect

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