Why Smarter Tech Integration Is Critical to M&A Success
By Cindy Waxer | 11 min read
When Newmont Mining Corp. acquired Canadian miner Goldcorp Inc. in January 2019, the Colorado-based giant thought it had, well, struck gold. The deal – valued at about US$10 billion – made the combined company, dubbed Newmont Corporation, one of the world’s largest gold producers, responsible for around six million ounces annually.
But Newmont inherited more than it had bargained for with its acquisition of Goldcorp, including both duplicate and different IT systems and “processes on both the business and IT side,” says Om Singh, senior director of enterprise business solutions at Newmont Corporation. “After the acquisition was announced, we had two of everything – duplicate SAP systems, health and safety systems, integration platforms, document management systems, cybersecurity platforms, different network topologies, multiple data centers, different infrastructure standards.”
Not to mention this acquisition increased Newmont’s exposure to cybersecurity risks due to “varied cybersecurity policies around system upgrades, patching and protecting Personal Identifiable Information data in the two environments,” says Singh.
Welcome to the perilous world of corporate mergers and acquisitions. For companies like Newmont, M&A activity represents the fastest possible route to growth and innovation. In fact, the overall value of the global M&A market reached an all-time record of $5.9 trillion in 2021, up 64% from 2020’s pandemic-dampened total, according to financial data company Refinitiv.
But M&As can just as quickly lead to overstretched IT teams, cybersecurity risks, revenue loss, and employee mutiny if the technology systems and applications involved aren’t strategically integrated. The problem, according to Karen Thomas-Bland, founder of business transformation consultancy Seven, is that while M&A deals are subject to heavy financial scrutiny from shareholders and financial advisers, “good technical due diligence is rare and is often an overlooked area.”
That’s extraordinary, because digital assets and capabilities – from digital twins and specialty care platforms to advanced analytics teams and much more – are the coveted targets behind much of today’s M&A frenzy, according to PWC. Technology isn’t an afterthought, it’s increasingly central to M&A decisions, and support for M&A should be central to the CIO role. The good news is, by sharpening their focus on performing technical due diligence, emphasizing cross-functional collaboration, incentivizing employees, and maintaining strong C-suite support long after the ink dries, companies can realize the full value of M&A deals.
IT risks take center stage
History is littered with cautionary tales of what can happen when cultural differences, integration issues, or ill-informed advisers cause an M&A deal to derail. Consider, for example, Google’s purchase of Motorola Mobility in 2012 for $12.5 billion. After two short years, and the release of heavily criticized Android handsets of questionable quality, the tech behemoth sold Motorola for just $2.9 billion.
Other famous failed marriages include America Online and Time Warner, Sprint and Nextel Communications, and Daimler-Benz and Chrysler. In fact, an often-cited 2016 Harvard Business Review article claimed that between 70% to 90% of acquisitions are abject flops. While root causes historically have ranged from gross mis-valuations to cultural clashes, today the technology risks are more central than ever.
“Technology either makes or breaks the deal – it’s that important,” says Thomas-Bland.
Consider, for example, a company that fails to rid a customer relationship management system of duplicate records in the wake of a merger. It’s a simple misstep that can easily frustrate employees, such as a sales associate who needs timely and accurate customer information to do her job. Meanwhile, a customer may get duplicate or incomplete invoices or communications. Either way, both employee and customer may respond by leaving, resulting in lost revenue and increased employee churn.
Worse yet, these problems only multiply over time: “Clients get caught up in this loop of not having finished Transaction A and then moving onto Transaction B and Divestiture C,” says Nikhil Iyer, managing director of mergers and acquisitions at Accenture. As a result, he says, “Technology teams get bogged down,” deluged by support requests and distracted from more forward-facing work.
How to avoid tech risks (and get M&A rewards)
Fortunately, with disciplined attention to several tech-specific M&A strategies, leaders can ensure they complete the full integration work every merger demands, positioning their organizations to derive maximum value going forward.
First assess. Then integrate or eliminate.
Before determining a course of action for integration, companies need to complete a pre-M&A technology assessment of existing IT resources. This includes not only hardware and cloud-based applications but also skills and technical culture. An assessment of this kind requires a bracingly honest self-examination on the part of the acquiring company.
According to Iyer, a proper assessment begins by asking questions that focus on whether the organization is truly prepared from a technology standpoint to complete an acquisition. Iyer offers examples such as:
- Do you know what your technology strengths and weaknesses are?
- Where do you need to engage external subject matter experts to help shore up these gaps?
- What have your concerns been in the past – infrastructure, cybersecurity, or the application landscape?
“Being self-aware of all of these factors and knowing your capabilities can really help jumpstart the process,” he says.
Not all M&A deals call for integrating IT assets. One party’s IT stack, or significant parts of it, may prove far more valuable than another’s. However, determining which systems to integrate and which to eliminate can be a difficult feat. Iyer says he and his clients extend the assessment process to include discussion with business leaders, commercial leaders, finance leaders, and technology leaders in both organizations. The goal is to arrive at a well-informed set of parameters for choosing which technologies to use, and which to lose.
Newmont illustrates how this specific type of due diligence works. The acquisition of Goldcorp resulted in multiple data centers scattered across North America. “IT can be one of the most difficult areas to integrate in a large acquisition,” says Singh. “Starting a consolidation exercise with three data centers spread across three different regions was very difficult.” That’s because integrating systems situated in multiple locations and synchronizing vast volumes of data across multiple data centers can be a lengthy, costly, and bandwidth-consuming exercise.
To remedy the situation, Singh says the company “took an inventory of all its applications and developed strategies around application rationalization, network integration, cybersecurity integration, and contracts rationalization across different data centers. We then put together a road map with proper sequencing, funding, and sponsorship to minimize the amount of rework and disruption to employees.”
Look for chances to move more aggressively to the cloud.
“Lift and shift” movement of applications to the cloud isn’t a viable one-size-fits-all strategy for IT. However, since mergers create tech disruption anyway, they provide an opportunity to accelerate towards more cloud deployment, which can help solve or reduce some integration headaches.
Early in the process, Singh says Newmont identified significant redundancies across the two parties’ ERP systems. However, eliminating either system quickly would have been a disruptive and costly choice. Instead, the company migrated both systems to the cloud, co-locating them in a single environment – a far more efficient setup than maintaining two on-premise systems with different standards and protocols. By doing so, Singh says the company prevented employees from having to “jump through hoops to access the two separate systems.” Instead, he believes the cloud provides “one access point that lets employees, regardless of what company they worked for prior to the acquisition, use the same channel to access its ERP systems.
“This also provides synergies in maintenance, support, upgrading, and patching of systems, and gives us the platform to start our consolidation activities without worrying about integrating the systems across disparate environments,” he says.
Indeed, by reducing the complexity of maintaining and accessing multiple ERP systems, the cloud has helped Newmont cut operational costs by $530,000 a year, improve business continuity, and allow the central management of the company’s systems greater flexibility and scalability.
Staff M&A teams with influencers and collaborators.
People, not just technology tools, can make or break an M&A-driven integration.
“Having a dedicated team is really valuable for large companies that are about to undertake serial acquisitions,” says Iyer. In this case, he recommends establishing an M&A execution factory – “a technology leadership structure that manages and oversees multiple executions at the same time with its own set of reusable playbooks,” standardized processes, and blueprints, designed to accelerate the integration program.
Thomas-Bland emphasizes the need to populate M&A teams with individuals who have “credibility across the organization, the authority to work at a senior level, and a breadth of perspective.”
In addition to the dedicated team, some organizations may also establish a steering committee to provide high-level sponsorship and clout, as well as an integration program office to gather input from multiple departments at both companies. This will help define the scope of the integration work and create roadmaps.
The goal of an M&A team’s composition and capabilities at every level is collaboration, a key to both uniting technology assets and setting realistic integration expectations.
Clearly identify what’s not going to happen.
Speaking of expectations, Iyer says: “Successful technology integration programs really educate the business on what the technology constraints are, what technology can – and cannot – do realistically. Good teams are able to have clear alignment among the CIO, the CFO, the CEO, and all of the C-suite as to what the company can and cannot do.”
To set expectations and communicate limitations, Singh says Newmont held a two-day workshop “where business and IT came together and put their priorities on the table.” The company then used these criteria to determine a path forward for integration.
For example, Singh says Newmont’s business leaders were initially interested in a greenfield implementation of rolling out consistent supply chain, asset management, human resources payroll, and finance processes across the two environments. By understanding business leaders’ priorities, Singh says the company’s IT team was better equipped to weigh integration strategies and answer important questions, such as, in the case of the supply chain systems, “Can the business work with different processes for six months while we consolidate the two systems? Or should we spend this time making one supply chain system the same as the original one?”
In the end, Singh says the company opted to take a phased approach of gradually consolidating the two systems: first providing global foundational capabilities and processes for finance and master data, and then moving on to consolidate supply chain, human resources, payroll, and asset management by building on the foundational capabilities.
This type of clarity in the planning and rollout period helps reduce wasted effort, frustration, and surprise for everyone, which contributes to the next success strategy as well.
Excite – and incite – your employees to not just stay, but thrive.
Leaders need to provide both business and technology workers the necessary incentives — such as aspiring “roles and career paths” — to stay the course, even in the face of cultural clashes, says Thomas-Bland of the consultancy Seven.
Iyer offers the example of a client that was “acquiring a smaller company, a very entrepreneurial startup. It was hard for this company to get its head around the idea that this small company was highly entrepreneurial, fast, and agile, and that they made decisions quickly. It was a very laborious process getting the buying company to understand that these are very different people they’re acquiring, in terms of how they operate.”
To bridge such cultural gaps, Iyer believes executives must avoid taking a cookie-cutter approach to retaining talent post-merger or acquisition.
“The set of incentives that a company might use to retain key talent isn’t fixed,” he says. “Sometimes it’s financially driven; sometimes it’s about passion for the work; work-life balance; or the ability to engage in the overall community.”
As a result, Iyer recommends that leaders “try to understand what drives a target company’s stakeholders, and then use that as a way to incite employees” to stay passionate and engaged as they navigate the changes and challenges of combining with another organization.
Garner C-suite support for the long game.
The larger and more complex an M&A deal, the easier it is for a company’s IT and business leaders to get distracted by new and more pressing projects. “It’s not uncommon for large transactions to have nearly 400 different integration programs,” says Iyer. “It’s a three-to-five-year journey. When you have massive programs with multiple technology vendors and stakeholders, and people rotating in and out, it’s easy to lose focus.”
One way to keep an eye on the prize is by enlisting long-term C-suite support – the sooner, the better, says Iyer. “CIOs and CFOs need to clearly articulate the value [of an M&A deal] and build a strong business case,” says Iyer. “That’s a rigor I’d like to see more companies instill in their M&A programs.” Consistently reiterating that value throughout the long process keeps a merger on track toward realizing its full value.
Going forward: It’s about IT-business integration
The reality is that integrating IT environments during an M&A deal can be a significant challenge, posing risks to a company’s cybersecurity posture, brain trust, and even reputation. “There’s still this bifurcation in large organizations between technology and business, which leads some organizations to believe that technology comes second in M&A processes,” says Iyer. “But that needs to change.”
And change it will, as companies embrace strategies that encourage a closer examination of IT environments, greater collaboration between business and IT teams, and enhanced C-suite support for technology integration success.
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