Merger Mechanics

• Article 5 of 77
• Information Age, February 2001
• View the original article online

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When large companies combine, the challenge of bringing together their IT infrastructures can often make or break the deal, and even determine the chances of the merger's success. In fact, there are plenty of anecdotes about chief executives hatching mega-mergers with scant regard for the underlying IT issues. And while most aspects of the merging of two entities can take a few quarters, the integration of their IT infrastructures often drags on for years, and sometimes even undermines the effectiveness of the new organisation.

So how do IT managers ensure their companies survive and prosper after a merger? And what advice can they offer a company that is about to acquire or merge with another?

Last to know
Despite the huge cost and the technical difficulties associated with mergers, the IT integration issues have traditionally been overlooked during a merger and still are. N Venkatraman, a consultant at Concours Group, which has studied how IT has been affected in companies involved in mergers and acquisitions, says: “There are more cases in which IT is not involved because there is no context in which it can be brought into the merger [negotiations]. To understand how IT is used to create business processes is to recognise IT as an important part of the framework. In other words, CIOs need to get involved as soon as possible, because the accounts and HR departments are always consulted but IT rarely is, even though IT is important to every part of the business.”

That view is echoed elsewhere. “The IT director's role has traditionally been underrated,” argues Paul Cartwright, financial services partner at Accenture.

“People focus on the financial and geographical elements of a merger, but it's only recently that financial institutions [that influence the outcome of a merger] have seen that the seeds of the successful merger are in operations and IT.”

However, that is changing. According to a survey by Arthur Andersen, 63% of companies now regard IT as a “very important factor” in a merger and see the merger as an opportunity to reduce IT costs through economies of scale.

Richard Chang, a partner in Accenture's Strategic IT Effectiveness practice, says organisations can expect on-going IT savings of 15% to 30% of costs following a merger, while Paul Burfitt, global CIO at AstraZeneca - the pharmaceutical giant formed in 1999 following the merger of Astra with the Zeneca Group - says that savings of between 10% and 30% are possible, depending on the merging companies' priorities.

Fall guy
That is where a lot of board-level eyes are trained, post-merger. Hugh Josty, a member of PA Consulting's management group, has consulted on four different mergers. “IT often gets cast as the fall guy,” he says. “They're the people who are under the 'critical' heading for achieving the budgets of merger. But the task that goes on longest is IT integration work. So 'Why is it taking us 18 months to close down old systems and get on a common infrastructure?' is a pretty common question.”

Sometimes, whole mergers can hinge on whether IT can achieve that integration process. Josty cites the example of an insurance company merger that was based on the assumption that the two companies' databases could be combined easily. The merger plans collapsed when it was discovered that they couldn't and that “even the definitions of the policies were different”.

Colin Beveridge, an 'interim' CIO who has been through several IT mergers, recalls an incident where he was called in too late to help the companies concerned. “By the time I was there, the situation had deteriorated too far. The merger disintegrated a few months after I left. But it took 18 months to get to that point.”

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