1. IT Integration during M&As
Technology integration during
mergers and acquisitions
By: Amit Pawar
MBA/MS-MIS Dual degree candidate
2011

2. Contents
Executive Summary……………………………………………………………………………………………………………………. 2
Introduction………………………………………………………………………………………………………………………………… 3
Issue discussed in the press
Issue discussed by consultancy firms
Academic research on the issue
General issue this problem is related to
Challenges in resolving the issue…………………………………………………………………………………………………. 6
Recommendation……………………………………………………………………………………………………………………….. 7
Benefits………………………………………………………………………………………………………………………………………. 11
Conclusion…………………………………………………………………………………………………………………………………. 11
1 IT Integration during M&As

3. Executive Summary:
Many mergers don't live up to expectations, because they stumble on the integration of
technology and operations. But a well-planned strategy for IT integration can help mergers
succeed. – McKinsey Quarterly
Mergers and acquisitions (M&A) are one way of gaining competitive advantage in the
marketplace and achieving in-organic growth. However, they create some of the biggest
challenges for companies and their IT organizations to handle. These challenges incorporate
issues that cannot be dealt with conventional leadership and management techniques.
M&A is rarely discussed with the IT department, but IT integration plans can either make or
break the M&A process. The late entry of IT team on the discussion table causes the integration
to be incomplete, delayed, and costly, and this can frustrate business goals and undermine the
success of a merger.
The consulting firms have conducted extensive research to identify the existence of the issue.
According to a 2007 survey, by Bloor Research, Seventy-nine percent of mergers and acquisition
activity ignores IT integration. In general, most attention is typically given to commercial or
operational issues, which fail to consider IT or system integration challenges.
Moreover, this issue is likely to intensify as organizations become more connected and
dependent on IT systems for the day to day business. There is an increase in awareness but the
managers are still overlooking the value of synergy that can be derived through a successful IT
integration.
There are multiple approaches recommended to address the issue. This can lead to confusion
among managers trying to get a clear direction on the issue.I would recommend these
managers to focus on the following key steps to address the problem:
1) Involve IT department during the due diligence phase
2) Engage IT department in development of the integration plan
3) Ensure that IT organization is geared up to manage post-deal IT implementation risks.
a. Assessing the current IT environment and making necessary improvements,
b. Training staff to handle specific integration efforts
c. Creating proper documentation and periodically conducting a capability
assessment of existing IT systems
d. Developing integration principles and templates for due diligence and planning
This paper discusses the problem in detail along with the recommendation for solving the
problem.
2 IT Integration during M&As

4. Introduction:
Why this is an issue?
Senior management team typically fails to appreciate the scale and the level of turmoil caused
by smashing together two IT-enabled business infrastructures. It results in IT integration being
treated as a subject that is not of immediate concern. Moreover, the delay in involving the IT
team in the M&A process means that the acquisitions are executed under severe stress so the
post-merger IT integration becomes a process that is force fitted after the merger occurs.
The second reason management fails to fully embrace IT integration is that it usually requires
significant investment – potentially hundreds of millions of dollars – in areas such as
rationalizing applications portfolios, migrating customers and products, and building new
capabilities that combine the best of both companies.
Fingers increasingly point to IT integration as one of the key sources of problematic M&A’s,
especially in industries which are largely driven by technology: the difficulties that surround the
integration of complex, sprawling, and incompatible IT infrastructures.
Issue discussed in the trade press:
 M&A deals still overlooking IT integration challenge - Research finds no integration
within three months of deal completion. – www.cio.co.uk
 In general, most attention is typically given to commercial or operational issues, which
fail to consider IT or system integration challenges. M&A is rarely discussed with the IT
department, but IT integration plans can either make or break the M&A process. -
www.cioindex.com
 Determine how the CIO use potentially high integration costs to help negotiate the
purchase price down.... that's a sure winner with shareholders looking for added value.
The City tends to give a merged company only 100 days to deliver tangible benefits, so
the CIO can really improve his stock and influence by ensuring data integration costs
are factored in accurately and by talking to the shareholder's wallet," - Gordon Lovell-
Read, CIO of Siemens.
Issue highlighted by consultancy firms:
 "The truth about M&As is that about half of them either fail outright or else fall well
short of the value they're expected to bring because when viewed unilaterally, IT
integration can wind up crippling rather than enabling the new organization," says
Gary Curtis, partner in Accenture's Strategy practice.
 Many mergers don't live up to expectations, because they stumble on the integration of
technology and operations. But a well-planned strategy for IT integration can help
mergers succeed. – McKinsey Quarterly
 Seventy-nine percent of mergers and acquisition activity ignores IT integration,
according to a 2007 survey, this time by Bloor Research.
3 IT Integration during M&As

5.  Accenture studied 57 M&A projects in North America and Europe in the late 1990s
(target companies: $100 million to $500 million in revenues) and monitored them post-
merger, paying attention to the integration efforts surrounding IT operations and the
effects on the company. The study found 58% of the companies did not get IT involved
in integration planning until after the plan to merge was announced. Twenty-six
percent got involved during the deal, and only 16% got involved pre-deal.
Research that identifies the issue:
 Seventy-five percent of managers worldwide admit they don't even consider how IT
issues will affect operations until after the merger, according to a 2007 Hay Group study
 According to the Bloor study of 56 large organizations, only 21% of CIOs feel that the
consideration of IT issues had been given appropriate weight in the decision to merge or
acquire.
Examples that illustrate importance of IT Integration in M&A:
 Lloyds and TSB were unable to integrate their back-office systems resulting in bank
tellers unable to access a common set of banking services. The expected synergies were
not realized.
 On the other hand, the success story of Sallie Mae’s acquisition of USA Group was the
result of a successful post-merger IT integration.
 The merger between Hewlett-Packard Company (HP) and Compaq Computer
Corporation (Compaq) failed as the synergies identified prior to the merger did not
materialize. One of the reasons was the complexity involved in moving four ERP systems
to a new SAP system. Ultimately, the integration problems cost HP’s new enterprise
server division $400 million in revenue and $275 million in profits.
4 IT Integration during M&As

6. General issue this problem is related to:Failure of M&A’s to create value for shareholders
The primary causes of this general issue are given below,
• Flawed corporate strategy for either or both companies
• One company sugarcoats the truth, the other buys a PowerPoint pitch
• Sub-optimum integration strategy for the situation
• Cultural misfit, loss of key employees after retention agreements are up
• Acquiring company's management team inexperienced at M&A
• Flawed assumptions in synergies calculation
• Ineffective corporate governance, plain and simple
• Two desperate companies merge to form one big desperate company
• CEO of one or both companies sells board and shareholders a bill of goods
• An impulse buy or panic sell gets shoved down the board's throat
Studies that identify severity of the general issue:
• Numerous studies digging into transactions that have totaled between $1 and $4 trillion
annually during the past decade - from deep academic research to qualitative surveys by
well-connected consultancies - have come up with roughly the same figure: around 70%
of M&As ultimately fail to create any incremental shareholder value.
• Mercer Management Consulting noted that between 1984 and 1994, 60% of the firms
in the "Business Week 500" that had made a major acquisition were less profitable
than their industry.
• In 2004, McKinsey calculated that only 23% of acquisitions have a positive return on
investment.
5 IT Integration during M&As

7. Challenges in resolving the issue:
As we make an effort to understand the challenges faced in resolving the issues, we need to
know some key facts about technology integration 
 Each organization uses its own technology and has crafted its own infrastructure, with
distinct operating costs.
 Bringing the two systems together means additive costs, and integrating those means
that complexity increases exponentially.
Key challenges: If the potential issues are identified before the M&A process the IT
organization will be better geared up to manage post-deal IT implementation risks.
 Identifying and resolving IT conflicts between organizations.
 Assessing, analyzing and planning the integration of two different IT infrastructures
without any operational loss or efficiency.
 Improving operational efficiency by identifying the synergies to reduce the total cost of
operations.
 Identifying all the touch points of information flow and the data source required for
integration.
 Maintaining the corporate security policies to protect the data and comply with all
regulations.
 Bringing the IT and business side together to develop a common vision of the combined
company end state and to create a common agenda for getting to it.
6 IT Integration during M&As

8. Recommendations:
Successful M&A integration does not rely exclusively on the CIO and IT, but they bear a large
part of the burden, since integrating people, operations, information and processes requires
significant technology investments.
One of the critical recommendations is that the management should ensure early involvement
of IT team in the M&A process
Proposed Current
involvement of IT involvement of IT
team team
Source: Adopted from chart by SPS intellect
Following steps can be taken by the managementto preparethe IT team for any future
integration opportunity:
 Assessing the current IT environment and making necessary improvements
 Training staff to handle specific integration efforts
 Creating proper documentation and periodically conducting a capability assessment of
existing IT systems
 Developing integration principles and templates for due diligence and planning
Quite clearly, a successful post-merger integration must include a robust IT integration plan
which forms an integral part of all the phases in M&A process. The best plans begin with
rigorous IT integration planning and an effort to identify all major issues that may arise. They
include detailed and objective assessments of IT capabilities, technologies and architectures,
including the investment required for successful integration.
7 IT Integration during M&As

9.  The due diligence/planning phase. The critical point here is that you don't need to rush the
integrations – take time to plan and communicate first. In this phase it is crucial to make an
assessment of the infrastructure and application integration opportunities.
Deliverables:
• Integration Blueprint – Principles, strategy, and a pragmatic approach with clear
migration paths and workable operational model.
• Milestone Plan – Predefined set of objectives, project controls and clear definitions
of the governance process, in sync with corporate governance.
 The welcome/signaling phase. During this stage, focus on a few visible changes, such as
merged e-mail.The business and IT team should come together and create a set of pre-
defined critical success factors.
Deliverables:
• Portfolio Management – Clearly defined, value-driven project priorities and
portfolios.
• Contingency Plan – Clearly defined, with interdependencies and integration points.
 The initial/commercial phase. This is where the critical integration work begins, and
generally it's focused on regulatory issues or financial-management information systems.
Deliverables:
• Readiness Plan – Maps key strategies to make each stakeholder ready and able to
deliver and benefit from the desired outcomes stated above.
• Monitoring Framework – Provide accurate, detailed and adaptive monitoring of all
of distributed computing components and data, including the network.
 The main integration phase. This is where you get down in the trenches and connect the
big processes and systems. Follow the rationalization framework after selecting the best
approach from the following four options:
I. Parent Company Approach – In this soft approach the two merging entities will run their
systems concurrently for a while and choose the best later.
II. Old Legacy Approach – In this approach the strategies, best practices, processes, systems,
etc., of one of the entities are adopted by the new organization.
III. Best of the Breed Approach – In this approach the strategies, best practices, processes,
systems, etc., of one of entities are adopted from the other.
IV. Clean Slate Approach – In this approach, the merged business starts with a clean slate, using
brand new systems.
8 IT Integration during M&As

10. Deliverables:
• Communication Plan – Deals specifically with crisis communication, and will have to
coincide with the corporation’s various safety and emergency plans. It should have a
matrix of notification priorities covering all possible routine and emergency events
related to IT services, support and planning, and list responsible parties, affected
groups (stakeholders), and preferred communication methods.
• Resource Plan – Should show the breakdown of the major resource types that are
needed for the integration project.
 The reap-the-benefits phase, which is self-explanatory, but does include assessing what
you've learned in case you have to do it again.
Deliverables:
• Successful integration will create a single, well-organized and fully integrated entity
able to achieve the objectives of the transaction.
Mentioned below arefew good examples of frameworks that areused for IT integration:
Framework for rationalization of infrastructure and applications: (Source: Infosys technologies)
9 IT Integration during M&As

11. Framework for IT integration: (Source: Infosys technologies)
10 IT Integration during M&As

12. Benefits:
 Help the organization to bring out the synergy from the M&A
o Booz Allen analysis has found that about 15 percent of the synergy to be captured from
a merger comes directly from savings on IT operations. With another 25 percent
stemming from business operations where savings are dependent upon IT, the simple
fact is this: $2 of every $5 in merger synergy comes in some way from IT.
 Improved post-merger data integrity and standardization
 Reduced operating cost of the resulting entity
 Completion of the M&A activities in a planned manner with improved speed
 Integration, consolidation and retirement of redundant applications
Conclusion:
Appropriate focus on IT integration is the key to capturing most functional and operational synergies
and leveraging existing IT infrastructure. The IT team must have a place at the diligence table, and it’s
important to develop a vision, strategy and blueprint for how IT integration plan will contribute to the
M&A success without interruption, even as the structure of IT organizationitself changes as the result of
the deal.
11 IT Integration during M&As

13. Annotated bibliography:
• Manjari Mehta, Rudy Hirschheim, "A Framework for Assessing IT Integration Decision-Making in Mergers
and Acquisitions," hicss, vol. 8, pp.80264c, Proceedings of the 37th Annual Hawaii International Conference
on System Sciences (HICSS'04) - Track 8, 2004
http://www.computer.org/portal/web/csdl/doi/10.1109/HICSS.2004.1265631
This article highlights the importance of using a structured technique to tackle the IT Integration issue.
• David Aponovich, Mar 27, 2002, “IT Integration Seen As Key to Merger Success”.
http://www.cioupdate.com/research/article.php/999541/IT-Integration-Seen-As-Key-to-Merger-
Success.htm
This article provides citation to different studies conducted on the issue and provides tips on effectively
managing IT integration for a successful M&A.
• Mohan Bhatia, 2007 “IT Merger Due Diligence: A Blueprint”.
http://www.isaca.org/Journal/Past-Issues/2007/Volume-1/Documents/jpdf0701-it-merger-due-
diligence.pdf
This article focuses on being proactive and using the IT due diligence for minimizing the complications in
the issue.
• William B. Rouse, 2006, “Enterprise transformation: understanding and enabling fundamental change” -
John Wiley and Sons
This book provides some examples and learning’s from failed M&As like HP and Compaq merger
• Laurence Goasduff, October 25, 2006, “Gartner Advises CIOs to Develop Their Approach to Mergers,
Acquisitions and Divestments” – Gartner press release.
http://www.gartner.com/it/page.jsp?id=497489
This article provides ten practices used by experienced CIO’s to manage IT integration during M&As
• AshwaniArora, Senior Project Manager - Banking and Capital Markets, Jan 2011, “System integration during
M&A: How much to integrate?” – Infosys Technologies
http://www.infosysblogs.com/oracle/2011/01/system_integration_during_ma_h.html
This article highlights the key factors that should be considered in planning the IT integration during
M&As.
• Shaun Rein, June-2009, Why Most M&A Deals End Up Badly, Forbes.com
http://www.forbes.com/2009/06/16/mergers-acquisitions-advice-leadership-ceonetwork-recession.html
This article identifies the possible pitfalls of mergers and sights different examples related to the issue.
• David F. Carr, Dec-2008, What IT Leaders Need to Know About Getting Mergers Done Right.
http://www.cio.com/article/472426/What_IT_Leaders_Need_to_Know_About_Getting_Mergers_Done_
Right
This article provides critical advice for CIOs to manage IT integration during mergers.
• W Menge - 3rd Twente Student Conference on IT, 2005 – Citeseer, “Pre-merger IT Strategies.”
The paper mentions how organizations could anticipate mergers and structure their IT to avoid problems
in future mergers.
• Stefan Henningsson, "Strategic Value of IS Integration in M&A--The Relation between IS Integration and
M&A as a Tool for Corporate Strategy," hicss, pp.221b, 40th Annual Hawaii International Conference on
System Sciences (HICSS'07), 2007
This articles specifies how absence of insight into the relation between IS and M&A hampers the
development of the scientific field and distract business professionals.
• Zhao, Jun, S.M. Massachusetts Institute of Technology, 2006 , “The IT integration of mergers &
acquisitions”
This academic research article investigates factors that influence the effectiveness of IT integration in
M&A.
12 IT Integration during M&As