1. Introduction
The evolution of the merger and acquisition is interesting to know over the last 100 years. Economists and historians primarily refer to 6 waves in the mergers and acquisitions activities.
These 6 waves are as follows :
- First Wave (late 1800’s): Horizontal groupings and consolidations of several industries.
- Second Wave (early 1900’s): Mainly horizontal pacts, but also many vertical pacts.
- Third Wave (mid 1900’s): The conglomerate era involving acquisition of companies in different industries.
- Fourth Wave (late 1900’s): The period of corporate raider, financed by junk bonds.
- Fifth Wave (early 2000’s): larger mega mergers.
- Sixth Wave (till date): More strategic mergers designed to complement company strategy. Focus on post-merger integration.
2. Factors of Successful Integration
Following are the key points of integration process:
2.1. Integration Planning: Business and IT Strategy Alignment
IT has a major impact on the complexity, cost, and time required to complete merger and acquisition planning and execution. Companies, especially software development companies, must keep a check on the complexity, cost and time.
Accenture research has found that those companies that involved IT in the pre-deal planning for the M&A not only did better in term of financial results, but also reported the overall merger integration as a success.
2.2. Integration Planning: Perform an IT due diligence
An IT due diligence should be performed before the deal is signed. Due diligence is an investigation or audit of a potential investment. IT due-diligence should be thorough.
J.P. Morgan Chase, Procter & Gamble confirmed the importance of IT due diligence.
2.3. Speed of Integration
Speed of integration is always mentioned as one of key successful factors of the M&A. The variability of the IT system can make the compliance effort very costly. Companies have to act quickly to identify the compliance list to address the same as fast as they can.
Software development companies can always adopt this success factor i.e., speed of integration, as they already have expertise about software and systems.
2.4. Effective Communication
The Culture issue has been a common concern in mergers and acquisitions integration. But if IT cultural issues are addressed properly, the success of the integration can be greatly boosted.
KPMG's surveys (KPMG 1999, KPMG 2001) found that 26% of companies had better-than-average success if they focused on resolving cultural issues and 13% more likely than average to have a successful deal when they gave priority to communications.
2.5. Application Selection
Swift and comprehensive integration of IT systems greatly enhances the chances of overall merger and acquisition success. The selection of applications is not based on individual applications, but on a group of similar applications, which is known as an application cluster.
2.6. Organization and HR: IT Organizational Fit
The IT integration of M&A includes the following components:
1. Integration of Information System that supports business units
2. Integration of IT organization itself
The success of the M&A depends on the above mentioned factors. Adopting one or more of the factors will let the organization realize the M&A success rapidly.
3. The Cisco Case Study
Mergers and acquisitions expert Cisco Systems, that has acquired more than 125 firms in the past 15 years, takes culture into consideration with acquiring smaller firms. They evaluate the culture of the target, making sure there is some chemistry between Cisco and the target.
A prime example of Cisco’s philosophy in action is their acquisition of networking star Linksys in 2004. While Cisco engineers and manufactures configurable products for the enterprise, Linksys outsourced many of its functions and sold its products through retail channels to consumers. Cisco being a Business-focused firm differed from Linksys’s culture that was consumer-focused.
Cisco staff worked with Linksys employees to determine those areas in which Cisco would more fully integrate with Linksys, as well as those areas that would remain distinct and separate, a process called “selective integration.”
Ultimately, they found little commonality in application needs but were able to integrate fully in many other areas, such as sharing data-center space, productivity software, and HR functions.
Sometimes, Cisco acquires companies with different business models. This way they learn in an area where they don’t have a history of operating.
This is how Cisco leverages advantages of other companies and also lets other companies take benefit of its uniqueness of its operations and business model.
Cisco has also acquired software development companies in India. Pawaa Software, a Bengaluru based company, is one of the Indian company that Cisco has acquired.
4. Conclusion
The complete article can be concluded by dotting down the factors that each company should keep in mind at the time of their merger or acquisition. They are:
1. Early involvement of IT
2. Alignment of IT strategy with business strategy of the company, which includes the notion that business strategy, determines the integration approach
3. Know what you are buying. Conduct due diligence before the merger is closed
4. Detail planning of the integration
5. Effective communication to all the stakeholders (including its employees)
6. Perform fast integration where it matters and is feasible
7. Effective employment of application selection so as to reduce IT integration complexity
8. IT organization fit is crucial
5. Reference
http://www.tgcpinc.com/SiteData/doc/MergersAcquisitions-MBrenner-071409/976ceba14c4fae75a4bbcb514bb34762/MergersAcquisitions-MBrenner-071409.pdf
http://www.cio.com/article/2440630/mergers-acquisitions/success-factors-for-integrating-it-systems-after-a-merger.html
https://dspace.mit.edu/bitstream/handle/1721.1/35101/71356376-MIT.pdf?sequence=2
http://www.ibmsystemsmag.com/power/businessstrategy/migration/mergers_acquisitions/?page=1
http://www.itbusinessedge.com/cm/blogs/lawson/four-lessons-for-it-integration-after-a-merger-and-acquisition/?cs=34380
