Moving technology up the M&A agenda to drive deal value

Co-authored with Tamara Fahey, Principal Consultant at Eighty20 Solutions

Mergers and acquisitions come from a solid business case, founded on the efficiencies, cost savings and overall value expansion can deliver. But one of the most significant value drivers – technology – is often treated as an afterthought. We take a closer look at how to move technology up the M&A agenda to maximise value and minimise disruption.

When a merger or buyout is on the cards, it’s driven by a number of metrics coming from due diligence around assets, financial performance, forecasts and more. CEOs, shareholders and boards invest valuable time and energy unearthing all the economic details of a deal before and during negotiations up until the contract is signed.

By overlooking the technology element of due diligence, these stakeholders can be doomed to disappointment in realising the expected value of an M&A deal. Research has shown that failure to properly assess technology alignment across entities can have a critical impact on the value shareholders can expect from a merger.

Technology due diligence has become a central focus given the significant pace of change across all industries. New technology-led commercial opportunities, such as monetising data, the creation of new services and driving cost efficiencies, will only continue to increase in importance.

Creating Value Beyond the Deal, PwC, 2019

In reviewing nearly 200 M&A transactions over US$1 billion in value, an Accenture survey found that for 70% of deals that underperformed their 24-month shareholder return sector average, stakeholders had placed limited emphasis on technology early in the deal cycle. And in cases where transactions beat sector averages, 80% had made technology a major focus throughout the transaction[1].

Giving CIOs line of sight

Getting CIOs involved from the very start is far more than a damage control exercise. When technology considerations are prioritised from the outset, this can uncover where the value lies in future capabilities of a merged entity. In fact, 96% of CIOs taking part in technology due diligence revealed issues or opportunities likely to have material impact on the planned deal. Reporting on these levers of value is critical if shareholders and directors are to grasp dependencies on core technology and be fully informed on all the pros and cons of making a deal.

For every M&A situation we’ve seen at Eighty20 we recommend developing a high level assessment to determine what does and doesn’t align across two technology environments. And this shouldn’t be limited to a detailed profile of tenants, data architecture, user permissions, security, infrastructure and more. It needs to start with the operating model for each company and how technology is being harnessed to support key functions and strategic goals. Not only can this identify the quick wins in cost-efficiency that directors and shareholders are looking for, it provides the framework for a successful, long-term optimisation of technology for the combined organisation.

Get clear on the operating model

This can sound like a simple solution and program of work. Line up the operating models and tech stacks, spot the difference and make a call on which elements to keep and divest, where the gaps are and what the future state should look like. But operating models are rarely recorded as a tidy blueprint of how an organisation is designed to function. People and processes that support an operating model are a moving target, making the bigger picture and details hard to pin down.

Getting a handle on all the projects and workflows in motion for both entities is a tall order. But for realising value from a merger – from both a technology and productivity perspective – it’s essential. If you understand what drives, uses and consumes your technology, you‘re going to be making better informed decisions around enhancing and streamlining a combined tech stack. It’s also the foundation of being accountable over the longer term for the strategic decisions you make for your technology and operations.

Technology can no longer be viewed as part of housekeeping because it’s at the heart of an increasing number of transactions. It’s a value creator and should be treated as one, strategically and operationally.

Mapping the DNA of M&A value, Accenture, 2022

Taking a step back to review current projects and workstreams from a strategic standpoint is also a great opportunity to better align technology with business functions. When organisations have been operating in siloes and new initiatives and projects have been added to exponentially in the digital transformation race, an operating model can look pretty tangled. Efforts to align will not only bring clarity to technology and business strategy it’s also key to managing how this flows into people, process and technology change management during a merger.

Focus on processes for better productivity

Understanding and aligning processes before making technology-based decisions isn’t just important for longer-term strategic outcomes. Loss of productivity from duplicate or overly complex processes is a sure way to sabotage value creation in an M&A situation. What starts as a makeshift ‘holding pattern’ to keep two organisations running in parallel can go on for months or years.

Ignore process in a bid to realise value from technology and your workforce are likely to get frustrated with the status quo, creating a challenge for talent retention. This highlights another key priority for tech transformation that’s often overlooked in M&A – how does your combined technology support your people and how do you keep the people you need to support your technology?

Monitoring how staff are functioning during and after a merger can be critical in highlighting crucial business functions that are at risk. Reporting on these metrics allows decision makers to intervene early with investment in technology, communication or process design to help people and teams work more consistently and productively, boosting the value they’re delivering to the merged entity and its stakeholders.    

A tailored and dynamic approach

At Eighty20 we’ve had extensive experience with M&As, giving us best-practice insights and solutions to offer to our clients undergoing this critical phase in their business and technology transformation. But that doesn’t mean we expect to deliver success from a formula or a framework that’s set in stone. We have a boutique style that recognises that every client has a unique culture and operating model that will play a central role in technology choices.  

Our approach looks beyond tech stack components to determine a specific organisation’s requirements, strategic goals and measures of success. We also develop a set of metrics to monitor the impact and value delivered from recommendations so that IT teams and leaders can be clear on the return they’re getting from their investment in transformation.

Looking for a way to harmonise and optimise your technology and operating model? Get in touch to discover how we can support you.