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Design & Technology May 22, 2015

The importance of digital governance in mergers & acquisitions

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It’s sobering to know that although many organisations use mergers and acquisitions as a key driver for growth, it is reported that a staggering 85% of them are regarded as a failure by the acquirer, with a company’s market value potentially falling by as much as 10% in the first year, post-merger.

One of the most common reasons for this failure, is that the acquiring organisation fails to effectively manage the end-to-end merging process.  The strategy and due diligence may be solid, but can be let down by the execution.

The IT Imperative

Typically, 25% of merger and acquisition effort comes from IT. The integration of IT systems, which is fundamental to the success of any merger, is often where the execution is most likely to go off the rails and cause a lasting impact on the merger’s economics.

As well as being an integration work stream in itself, IT plays a role in many other functional and business units, uncovering dependencies and co-ordinating between them. This creates complex areas of activity, which require co-ordination, project management and governance.

Where this fails, over-runs and the subsequent cost implications can lead to integration plans being abandoned, or ‘patched’ solutions being used, which leads to inefficiency, and organisations being bogged down by multiple legacy systems.

Acquisition ‘Gotchas’

There is no quick solution to ensure the smooth running of a merger, as each acquired company will come with its own set of challenges.  Unforeseen obstructions often arise in digital integrations, which Gartner refers to as ‘gotchas’, such as:

  • Geographic gotchas include having to conform to new and unfamiliar regulatory regimes.
  • Industry gotchas relate to entering an unfamiliar business, with hidden issues around business processes, assets and capabilities.
  • Size gotchas relate to acquiring much smaller companies, that are often less mature and may have less well documented processes and customer data.
  • Cultural gotchas relate to differences in company and national cultures of the merging entities.
  • Partial acquisition and divestment gotchas may necessitate specific communications with staff to be divested.
  • Consortium acquisition gotchas involve multiple entities with varying priorities and agendas – situations that make integration difficult and risky.

Digital Governance Framework

Ultimately, success relies on there being a robust governance framework in place.  In regards to digital, by having a governance plan in place, organisations can avoid costs associated with running multiple CMS systems and hosting solutions, whilst ensuring corporate consistency and quality management of all digital touchpoints.  It can prevent duplicated content, and ensure your digital team’s morale is not effected by frustrating content management issues.

Although there is no ‘one-size-fits-all’ solution, having a fundamental framework to your integration process will pay dividends. To be successful requires meticulous planning, identification of risks early-on and rigid management.

In our next Merger & Acquisition blog, we’ll be sharing our top tips for establishing a governance framework.  If you have any questions or need help in the meanwhile, please contact us.

Questions? We are here to help!