by Joe Gleinser
6. July 2009 22:08
Usually IT is the last to find out about about a merger or acquistion. Most execs utilize the "We're already doing it so now make it work" mentality. As any IT Director or IT Manager knows, technology costs represent a significant expense during acquisitions and mergers. Failing to anticipate these costs can significantly affect valuation models and cash flow projections. Execs have to engage IT during the assessment phase of M&A. To help with that goal I have created a three part series to help IT Directors and Managers prepare their systems for an acquisition or merger, assist with assessment of M&A targets and maximize the resulting business value of merged IT systems.
Assessment:
As the IT Director or Manager, you must participate in the financial modeling that the executive team is using to evaluate the merger or acquisition. Consider at least these major cost components:
Platforms: Even within niche markets there are a variety of technology platforms in use. Mixing platforms can increase the initial costs of integration and/or the recurring cost of support. Your Microsoft stack is not going to work with OESNetware without a significant amount of expense. It is not uncommon for organizations to run parallel systems for years after an acquisition or merger due to this cost.
Wide Area Networking: There are many types of connectivity used to link remote sites with other offices. Most are incompatible with one another. Assume a replacement of all firewalls and routers within the acquired organization.
Phone System: Most businesses merge their phone systems to accommodate new locations and offices. This almost always means throwing away one or more of the systems. Replacements can range in price from $7,000 for small remote offices to $100k or more for large sites.
Historical Access to Data: A major component of integration costs is integration of historical data to new or merged systems. It is much cheaper to have a "day forward" strategy, incorporating only new transactions into merged systems. This strategy's success depends on retaining the functionality of old systems for strictly historical data access. This generates substantially higher support costs, but defers major upfront expense.
Check in again for the next installment as we continue this topic.