Spotlight on M&A Systems and Data Considerations

This blog will focus on the technology component of M&A and secondarily recognize the impact to people and processes that any large change in technology engenders. Technological systems are a critical piece of any business today and are instrumental in supporting large scale growth without proportional expense growth. While a merger creates technological risk, it also provides an opportunity to upgrade systems in a way that seldom can be organically justified. Mergers present a time for courage and clear direction as succumbing to the inherent political battles over system superiority will create decades of extra expense and reduced agility.

To begin the technological evaluation process during a merger, it is critical that each company have a portfolio of their major systems along with a Total Cost of ownership (TCO), and a roadmap for upgrades, capacity expansion and sunsetting. Using this portfolio, system and capital decisions need to be made quickly. Often system capacity becomes the driving force if one system can handle the combined volume and the other cannot which is understandable because it bypasses the politics and generally aligns with the larger company. However capacity is only one factor to consider in such an evaluation.

Another factor to consider is the increased technological complexity due to the addition of multiple products, geographies, businesses, or channels to your organization. In working for a previous client, we found that the systems were effective and had sufficient technical and data capacity but operated only in selected states. Therefore we conducted research into moving operations into additional states and created a complexity grid that the company to estimate the system enhancement complexity of expanding operations. The grid provided objective input into any planning process contemplating geographic expansion.

Such preparation is critical in being able to quickly assess systems. Failure to make quick assessments can become a polarizing factor between two companies at a time when the two should be assimilating. Even with preparation, another obstacle to quick assessments include the people inside the business and in IT who often see system changes as weakening their skill set and increasing the uncertainty of future employment. The result is that people create judgments quickly and become highly defensive. This is problematic because you need these people making key system decisions early to minimize resistance and politics. The actual system consolidation will happen medium term, but early decisions give everyone a common technological platform plan for the future.

Many companies have, or recruit expertise in managing system integrations and have seen the continuum of integration success. Even with the best technology integration though, data is often an issue because you can consolidate systems but it's very difficult to consolidate historical data, especially customer data, without impacting the customer. Data complexity expands as multiple channels are considered which need to be integrated for a seamless customer experience. Therefore, when planning for mergers, the data design demands prioritization.

Sometimes these consolidation issues can be remedied by smart data standards decided in advance. For example, one bank decided that all customer account numbers would stay intact despite any merger or branch acquisition. This is very important to customers and can be executed when the overall data design provides that flexibility in advance.

Data integration is often the most complex and risky part of technology conversions. The establishment of strong data warehouse architecture and standards can provide an effective umbrella over disparate data sources and definitions. Many integration issues can be resolved in the translation layer, which isn't easy but it's centralized and coordinated. Depending on your data warehouse platform and capability, this is an area that should be assessed early and estimated conservatively in any due diligence. It is important to assign your best technical architects and business experts to this architecture and ETL design to address issues quickly and give you confidence that the base you create will sustain the core of your business for many years to come.

In some industries, there are a limited number of core systems running at merger targets. Consider developing translation maps in advance or as part of a merger for those core systems. With one client we actually built extra time in for these translations and then had a project funded to automate the build out of key adapters so the next acquisition would be faster and cheaper. It was a very successful strategy and was the driver in turning our M&A strategy from opportunistic to offensive.

The technical complexities are greater than you will ever estimate and the quality of your work will impact your company and your ability to absorb future consolidations for many years. Prepare, lead and deliver.