Ensuring mergers with IT

Your company may be preparing for a merger. But before you start the merger process, do you think your company's IT department is ready for a merger? Can the company explain the specific motivation for this strategy to IT staff? Most importantly, has your company planned to enable information technology to contribute to the benefits and success of the merger?

M&A doesn't happen for no reason. Whether the CEO wants to capture a larger share of the market or the head of the division intends to address a competitive threat, there will be a compelling case for the action. Unfortunately, not all IT people are involved in M&A discussions in the early stages of strategic planning. Management may believe that too many people make mistakes, or that too many people will increase the risk of a plan being rejected. But it is undeniable that the participation of technical personnel can ensure the unity of business and business goals.

The IT team can help evaluate the target company's technology assets, determine the scope and cost of the system merger, and find opportunities for the merged company to work together in new business areas.

"Many companies think about saving money when considering a merger, but Morgan Stanley and Dean Witter Discover merged for profit." Morgan Stanley's Dean Witter & Company IT business Manager Jonathan Teplitz said, "Morgan Stanley owns the product, Dean Witter owns the channel, and the Discover card business can deliver ongoing benefits. Most people see the role of technology in mergers as Gain economies of scale and cut redundancies. We merge for efficiency, so we focus on collaboration."

But for companies looking to cut costs, IT can also help. "In a cost-driven merger, effective technology integration enables communication, collaboration and cost reduction within the combined company," said George Sherman, chief technology architect at Morgan Stanley & Co. . This is a key factor in determining the success of a merger, he added: "Determining the scope and depth of technology infrastructure and application integration early in the merger helps IT help ensure success. Company management should Think of this as a business enabler, not a business impediment."

Rather than focusing on the financial aspects, companies should identify key business integration issues and estimate the associated costs. Understanding differences in company culture, compensation measures, employee benefits, business and technology from company to company as soon as possible can highlight key issues. This approach can also improve the accuracy of the integration costing scheme, including tax implications and overall assessment of the target of the merger.

The IT team should include professionals who are familiar with IT technology and project development rules. For example, do the two companies have similar technical expertise, or are their technologies complementary? Are these technologies beneficial to the projects planned by the merged company?

Assessing Technology Assets Before Merger

Morgan Stanley is pursuing a merger of an asset management company whose technology assets have been assisted by IT professionals. This allows for an early understanding of the value of its IT resources and integration requirements.

One of the toughest issues is making sure you ask the question accurately. How to integrate it in terms of application and infrastructure? What are their main processes for IT alignment and risk management? What are their financial criteria for assessing the success of technology projects? How much revenue is invested in technology? What is IT culture? Answers to these questions help quickly grasp technical and cultural issues that may affect future integration projects.

Managers should be aware of the company's technology assets and should ensure that these assets are properly described and accurately reflected in the merger's financial reports and contractual terms. For example, how does the age of an IT facility affect the interpretation of financial statements, amortization of capital projects, and return on investment in technology? Has the seller had a major upgrade recently? Do you need to invest a lot of money right now to keep your technology up to date with the merging company?

There are no strict criteria for valuing technology assets, and the value of technology varies from transaction to transaction. In some deals, the merging party can reap huge benefits by purchasing industry-specific databases or advanced broadband networks. In other transactions, technology may not matter.

Bryan Finkel, managing director of early-stage venture fund Advanta Growth Capital LP, said, "We're not focused on technology. We're focused on the business on top of the technology. The value of the technology on the business. The contribution rate is 20%, and the effective application of technology in product development, marketing and distribution accounts for 80% of the business value." Therefore, new technologies must be able to meet market needs more effectively, otherwise they will be worthless.

Acquiring parties are often more interested in the employees developing the technology than in the technology itself. If a company develops top-notch technology, it's actually sending a dazzling signal: "We've got talent here." Verisign, for example, used $25 million worth of stock last year to buy a small electronics company with zero earnings. Business software company Nanobiz. Verisign believes that Nanobiz's development team has accomplished some difficult tasks, so it hopes to recruit these people.

Terri De Turris, technical coordinator for Clifford Chance Rogers and Wells, emphasizes that all existing sales agreements must be examined with legal experts to determine what is most important to the ongoing business Relationship. Examine all hardware and software sales agreements to determine what they contain and how much any seller or solution provider limits liability for its products and services. At the same time, all ongoing maintenance, service and safeguard agreements should be examined in detail to ensure the necessary protections and safeguards are in place, and should ensure the transferability of said agreements.

Driving System Integration During Mergers

Effective planning should take place long before the ink is dry on a final agreement. When there is a 50% certainty in the agreement, the IT department should designate an integration lead and a candidate member of the integration team. If the deal doesn't come through, the IT department may be wasting some energy. But if the agreement goes well, the IT department can quickly follow up, greatly increasing the success rate.

The first step is to develop a clear strategy for the integration team. This keeps work on schedule instead of keeping employees working on one problem at a time. As early as possible, arrange for representatives of each department to meditate in a secluded place outside the site, and conduct a comprehensive review of the integration work, including all important aspects from the modification of the network structure to the design of the website.

Is the company really ready to take the best course of action? Does the company want to avoid major change or disruption in the first three or three years? Does the company want to go to great lengths to integrate systems and operations as quickly as possible? The answers to these questions will depend on the willingness to embrace change, as well as the dynamics behind M&A transactions. For example, a manufacturing company may tolerate the long-term existence of separate enterprise resource planning and accounting systems, focusing instead on production and quality standardization.

Mount Sinai NYU Health Chief Information Officer Stuart Sugarman was tasked with integrating the combined systems of five hospitals and two medical centers. Thomas Jordan, the company's vice president of IT, details their initial focus: "The first thing to do is to stabilize the infrastructure. We installed standardized desktop computers to drive the adoption of automation software."

Continued Down the line, the team built a standard-architecture of servers, desktop computer systems, email systems, file storage, and network storage managers. Today, newly developed or externally acquired applications can be seamlessly integrated. "This has enabled our business to run smoothly and has also enabled us to undertake more projects."

The IT department also implements various demonstration projects, such as various alternative data structures, architectures and application methods. A database of local systems, Sugarman mentioned. The master database can be used to collect clinical data and send it to anyone who needs it. This approach can improve clinician productivity, enable longitudinal studies, and build a patient-centric information platform based on one system instead of five. They've also developed a physician portal that allows physicians to remotely access patient records, gather a variety of useful clinical information, issue orders, and retrieve results -- all through a single system. Previously, these jobs required seven different databases and physicians to be physically present.

Clearly, both programs provide better patient care, and both demonstrate the power of integrated systems. While there may be some resistance in the early stages of restructuring and application development, mergers are best supported by efficient systems that deliver both internal and external returns.

Increasing Company Efficiency After Mergers

Once an agreement is reached, new problems arise. When considering post-merger organizational adjustments, people often worry about shrinking and laying off redundant IT staff. But in most cases, the IT departments on both sides will remain unchanged. In fact, since there is often a lot of work to be done, they will also need extra help. Executives who have experienced corporate mergers on several occasions agree that the focus on corporate affairs is extremely important during the initiation and ongoing process.

The company needs to emphasize two points: determine the future direction of the company and ensure that everyone understands their role. Prioritize people's concerns and let everyone know where he stands in the new environment. Actively valuing all forms of communication is the key to successful integration.

While you may experience headaches and even heartache during the M&A process, the most important outcome is often a fundamental improvement in operations and cost-effectiveness.

For example, Grant Thornton LLP, an international auditing and consulting firm, is actively seeking to expand its market share and increase its internal resource advantage through mergers. Cono Fusco, who is in charge of mergers and business integration, said the company's strong IT assets have increased the success rate of merger strategies. "Our business is built on technology." The quality and sophistication of the company's IT facilities and proprietary tools give it a competitive advantage in dealing with M&A targets. If future partners consider the costs, deterioration factors, technology accumulation, and risks required to build similar IT systems, they will The potential added value and immediate benefits will be recognized. Four years after the Morgan Stanley merger, Sugarman noted that standardization and integration of IT, while not guaranteeing the success of the merger, can facilitate the sharing of information and best practices. programs to improve the overall efficiency of the combined company.

The original text is reproduced with permission from the September 2002 issue of Optimize Magazine, which is copyrighted with CMP Media LLC. Translated by Su Yong.

Stefanie Smith is the principal of the SSMC Group, which provides independent professional advice on the integration of information technology with business objectives.