IT – a key asset in M&A

Amid rapid technological advancement, the role of technology has shifted from a function supporting backend operations to the backbone of an organization’s business operations. IT has firmly established itself as a key driver of change; a pivotal differentiator; and a catalyst for transforming business processes.

Against this background, buyers and sellers in the M&A space must also consider the increasingly crucial role that IT plays in transactions. Involving IT at an early stage presents valuable opportunities and allows potential challenges to be identified and addressed proactively.

Ines Michel-Leitao

Director, Digital Transformation

KPMG Switzerland

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IT challenges in M&A transactions

Effective IT management can significantly impact the success of a deal as well as long-term value realization.

In deals where potential synergies fail to materialize despite aligned strategies and finances, inadequate consideration of IT integration or separation often emerges as a root cause. Even though IT is widely accepted as a vital component of successful M&A transactions, it is often overlooked or given less attention than it requires.

When companies divest, separate, acquire or merge, they must navigate intricate IT landscapes. This includes aligning IT systems and infrastructures, migrating data and assessing how it fits within the new company’s IT strategy and operations.

Ignoring these important and highly complex tasks can lead to value leakage, disruption of critical business operations and even compliance or governance issues.

As part of an appropriate approach to risk, companies should involve IT from the inception stage of any potential transaction. A thorough assessment of the prospective entity from an IT perspective enables a clear IT strategy to be developed, which in turn supports delivery of the expected business value.

Dedicated resources for IT integration or separation

An IT integration or separation management office (IMO or SMO, respectively) plays a pivotal role in aligning business and IT objectives as well as coordinating global teams between the seller and buyer.

This dedicated team orchestrates diverse activities, ensuring seamless coordination among technical experts (like network engineers, cyber specialists and data center personnel), IT business leads and procurement. Their primary objective is to facilitate timely project execution, efficiently manage interdependencies and contain program costs within an overarching transformation program.

The IMO orchestrates all parties involved in the integration of two or more companies and works closely with other functional areas of the organization to understand their ambitions and specific IT needs. Their goal is to ensure that the resulting IT environment is aligned with the business goals of the merged organization.

The SMO is responsible for managing all parties involved in the process of separating two or more companies from a technological perspective. The SMO evaluates the systems and infrastructure of each company and develops a plan for separating them while minimizing disruption to business operations.

Three focus areas for IT management

KPMG member firms throughout Europe have managed large-scale multidisciplinary integration and separation transactions end-to-end in various sectors. Since each situation is unique – with its own challenges and opportunities – there is no universal methodology to effectively manage IT in mergers and acquisitions.

However, KPMG has identified three focus areas for effective IT management:

Strategy and planning

A sound understanding of the business deal strategy enables IT teams to best support every deal. To achieve long-term success, it is also critical to align and coordinate short-term objectives and decisions with the overall strategic goals of the organization. This requires an in-depth understanding of the company’s values, vision and mission.

An IT assessment should be performed from the outset to assess the IT systems and structures of all involved companies and assess the compatibility of all IT systems, infrastructures and processes. This is the basis for developing a value creation plan.

Successful integration or separation isn’t just about IT systems (“IT4IT”) but extends to functions like finance, HR, supply chain, logistics or customer management (“IT4Business”). Early IT involvement is key if transaction hurdles, such as incompatible platforms, are to be flagged at an early stage. It also enables the identification of potential risks, like outdated technology in the target company that could burden post-merger operations.

Finally, capturing and paying attention to the IT aspects of sector specificities early on – such as GxP for the pharmaceutical industry, go-to-customer for retail, anti-money laundering and know-your-customer regulations for financial services or environmental regulations and sustainability reporting for the energy sector – is vital in order to anticipate potential delays. Industry experts bring valuable knowledge and insights to the table that can inform decisions and contribute to better outcomes.
Culture, talents and collaboration

Close collaboration between talented business and IT teams, supported by a strategic partnership, decreases deal complexity.

Company cultures can differ greatly. This aspect should not be underestimated during integrations and separations. It is critical to identify and manage cultural differences between the IT teams and processes involved through open communication and an atmosphere of trust where every party feels comfortable and understands their counterpart’s perspective.

Building a shared IT culture to ensure alignment and transparency between the business and IT teams as well as a common, well-understood “one team” approach minimizes resistance and fosters acceptance. In turn, this translates into integration and separation success. Investing in a long-term relationship with a strategic partner for integrations and separations enables faster and smoother onboarding and execution, leveraging a legitimate knowledge of the culture, organization, systems and processes to reduce downtime in what are often time-critical situations.

Retaining and acquiring top-tier IT talent is a priority for maintaining continuity, innovation and efficiency within an organization’s technological landscape. Skilled professionals not only safeguard institutional knowledge but also drive transformative technological advancements, ensuring sustained competitiveness in a rapidly evolving digital landscape.
Management and execution

An overarching function maintains strategic oversight and control and supports the effective execution of IT integration or separation programs.

Time is a critical factor in IT integration or separation projects and the IT function needs to be ready to ensure a smooth transition even when it cannot influence the deal closing date. Leveraging past experience and a broad spectrum of experts and specialists can, again, help during the preparation phase. Ultimately, the project team must balance anticipation and pragmatism in execution to achieve a successful integration or separation. And when everything is urgent, the team must appreciate that some priorities have to take precedence over others.

It can be helpful to establish a dedicated M&A and integration/separation team protected against side projects to maintain focus on transaction goals. Effective project management upholds schedules, resources and IT budgets. The IMO or ISO should include relevant industry expertise to ensure that industry-specific requirements and regulations are addressed, including potential issues, risks or delays.

Guidance and expertise

The process of M&A transactions is complex and fraught with challenges that can make or break a deal. IT is often overlooked in the M&A space, yet given its complexity and core function, it is a vital component of successful transactions.

Effective IT management can determine the success or failure of a deal and impact long-term value realization. A trusted and experienced partner can help properly address transaction-related IT challenges by managing and aligning the various parties involved throughout the M&A lifecycle.

At KPMG we know that there is no “one-size-fits-all” IT integration or separation setup and methodology. Based on our profound experience we offer solutions tailored to the specific deal context. Our services cover the entire deal lifecycle, from inception to post-deal finalization, encompassing transactional priorities, future growth aspirations, and strategic restructuring guidance.

Our IT M&A team specializes in guiding organizations to leverage the potential and mitigate the risks of technology within M&A dealings. We combine a keen eye for the financial aspects with profound technological proficiency, enabling a clear and positive impact on your deal’s value realization.

KPMG as a multidisciplinary firm provides people and cultural understanding, technical skills, genuine experience in IT M&A and knowledge of common project pitfalls. From this basis, we help you successfully execute your M&A deals.