november2021 - 6

TECHNOLOGY
- A CRITICAL DRIVER OF M&A SYNERGY
By Geoff Harkness and Andre Prince
M&A VALUE CREATION is traditionally viewed through the lens of three synergies:
revenue, cost and capital. Technology is a fourth key driver of synergy that is often
underestimated. Traditionally viewed as a subset of cost synergies, technology synergies
account for more than 50% of the total synergy value in most transactions.
VALUE CREATION - FIVE ENABLERS FOR
TECHNOLOGY SYNERGY REALIZATION
To realize the potential value of technology
synergies, considerable IT due diligence and posttransaction
technology transformation must be
undertaken. Key results from due diligence should
serve as the core component of a post-acquisition
100-day plan. Technology transformation includes
initiatives such as cloud application adoptions, ERP
footprint rationalizations, process automation
(Robotic Process Automation, Artificial Intelligence,
Machine Learning), and IT operational model redesign
to combine the two companies. Completing a
current state assessment, future state design, and
roadmap are integral to an effective technology
transformation. This process can be complicated
and costly if done incorrectly; however, we identified
five key enablers that lead to successful technology
synergy realization.
1. IT Operating Model
2. ERP & Business Applications
3. IT Infrastructure
4. Cybersecurity
5. Change Management
IT OPERATING MODEL
The IT operating model is the framework in which
all IT systems, people, and processes are brought
together to support the business. The IT integration
process offers a unique opportunity to optimize
the operating model with the future state in mind.
Organizations should consider the following questions
during due diligence and when developing the
future state model:
*Who will lead the IT function post-merger?
*Which systems will be retained or sunset?
*Should technology applications be cloud-based or
on-premises?
*How will the delivery of IT Services be structured (e.g.,
in-house, local, or outsourced provider)?
*What reliance will be placed on third-party vendors?
*How will data security be managed?
*How will software licensing and ownership of all
technologies be impacted/managed?
*What will be the nature of Internet Protocol and its
ownership?
*What is each significant operation's dependency on
technology?
*What data privacy laws affect the target company?
Asking such questions will allow the company
to streamline its operating model, reduce costs, and
enable long-term growth.
ERP & BUSINESS APPLICATIONS
ERP systems in place before a transaction are
typically not the best fit for the newly combined
business. Therefore, companies should assess
the existing systems' ability to support critical
business processes in the future state. This is
accomplished by gathering and prioritizing functional
and technical requirements, identifying
improvement opportunities and, if necessary,
conducting a vendor selection. These steps are the
most important components of the ERP integration
process. Optimal ERP and reporting systems will
drive value by improving processes for greater
efficiency and effectiveness, achieving economies
of scale, and incorporating controls to mitigate IT
6 NOVEMBER 2021 ■ www.CPAPracticeAdvisor.com
risks. However, capturing this value is dependent
on the effectiveness of an organization's change
management efforts.
In addition, combining, relocating, or consolidating
business applications is often necessary to
drive value, and this typically entails performing
an Office 365 tenant-to-tenant migration, which can
be challenging. Consolidating IT systems quickly
and efficiently is crucial, as delays can negatively
impact business operations. Employees can become
frustrated, and customers may depart. We recommend
developing a tailored strategy for tenant
migration that addresses an organization's unique
environment and needs. Rationalizing software
licenses can be addressed early to immediately
reduce costs and drive ROI.
IT INFRASTRUCTURE
IT infrastructure is the platform on which all
business applications are run; however, despite
its critical role, it is often overlooked due to its
broad definition. During the due diligence and
integration planning phases, organizations must
assess the current state of servers, networks, and
cloud applications to ensure optimal capacity and
capability to support the combined business.
Increasing the number of servers or expanding
the storage capacity may not be sufficient. A
complete infrastructure redesign may be required
to maximize the synergy value of the transaction
and mitigate risks. Determining the extent and
effectiveness of software can expose technical
debt (e.g., glitches, security vulnerabilities,
code-modifying issues, compliance concerns).
Consequently, the IT infrastructure landscape
should be examined holistically to determine
ability to scale, integrate and maintain current
operational demands. Achieving economies of
scale and centralized IT management are often
key value drivers with IT infrastructure.
http://www.CPAPracticeAdvisor.com
november2021

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