PEBBLE BEACH, Calif. -- When they're announced, mergers and acquisitions (M&As) often grab headlines, but what's...
more interesting is the untold follow-up story: A whopping 70% of all mergers and acquisitions fail to meet expectations.
Turns out that the people sitting down to ink the deals often don't involve their IT teams and are later surprised by integration costs and complexities, according to Kathy Burkle, director of advisory services and IT effectiveness at PricewaterhouseCoopers LLP.
"'Since IT is always slowing us down, we definitely don't want to include them on what we're doing,'" said Burkle, echoing the sentiment of M&A dealmakers. "Unfortunately that's the stigma that plagues CIOs."
Burkle's bottom line: M&As cannot be successful without IT.
"The most significant thing an IT person can do is raise the awareness of landmines associated with risk awareness," she added.
To ease the pain of M&As, Burkle said companies can identify five common IT pitfalls. The first is software and hardware licenses. Do your homework, she said, and don't assume licenses are transferable.
Next, evaluate outsourcing agreements. Your outsourcing contracts likely won't be voided in a M&A, so "be very, very aware of what the penalties might be." Third, check out your transitional services agreement. Don't be caught off guard. "I have never, ever seen a complete disentanglement of a unit at the close of a deal," Burkle said.
Next, you need to establish agreements to ensure business continuity during the transition period. Finally, be aware of contractual penalty clauses and "avoid them at all costs if you're acquiring," Burkle said. However, you should include them if you're divesting. "You don't want to be saddled with maintaining systems not in your company."
Post-merger integration costs can really add up. IT is the largest cost driver when integrating companies, Burkle said.
"It's impossible to know the future, but do some initial analysis during due diligence," she said. That means factoring cost projections into the deal.
When it comes to M&As, nothing is as important as the people involved. If employees aren't focused, the art of the deal means nothing. Burkle said employees likely will be worried and distracted, and headhunters will smell blood. Employees need to realize that the M&A will take time.