Doing an M&A Opens a Can of Technology Worms
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As the financial crisis persists and companies snap up their peers at discount prices, they might be getting more than they bargained for. That's because apart from the regulatory and financial issues, a merger or acquisition also involves a host of technology challenges.
Just in the financial sector alone, mergers and acquisitions (M&As) have been rife. Wells Fargo (NYSE: WFC) has bought Wachovia (NYSE: WB) annoying rival suitor Citigroup (NYSE: C); JPMorgan Chase (NYSE: JPM) has bought Washington Mutual (NYSE: WM); and Bank of America (NYSE: BAC) has bought Merrill Lynch (NYSE: MER).
Those firms will have their integration work cut out for them. IT challenges arising from M&As include synchronizing financial, legal and human resources (HR) data, as well as merging multiple IT systems, tying together front-end applications and scaling to support compliance regulations.
Synchronizing financial data is "the biggest issue" in an M&A, Tom Berquist, CFO of open source database vendor Ingres and a former Wall Street financial analyst, told InternetNews.com. "That means syncing financial accounts, so you have to be sure you're talking about numbers on an apple-to-apple basis."
This requires data cleansing and normalization, in addition to integration to eliminate duplicates and incorrect information. Financial data synchronization "has to be done by the first reporting period after the M&A has been completed, and this is where auditors and third-party companies and consultants make a lot of money," Berquist added.
Synchronizing legal documents and syncing HR data are the other two major issues enterprises face during M&As. These, too, have to be done during the first months after the merger, Berquist said.
"You have to worry about syncing legal entities and paying taxes and, in some cases, there's no change-of-control provisions, so you have to ship employees from the old company to new divisions of the new company, so you have to redo your HR and employee provisioning," he said.
Often, long-time employees lose their vested interests during an M&A "and employee issues and benefits can be some of the hardest things to handle," Berquist said. Also, different countries have different regulations governing what can and cannot be done when companies transfer employees because of an M&A, he added.
Merging IT infrastructures
Once those three issues are handled, enterprises have to deal with the multiple IT departments that exist after an M&A.
"Companies go ahead and do the deal and keep the systems separate over the short term, and in the long term, they put together project plans to merge them -- and sometimes it doesn't happen," Berquist said.
Honeywell had "120 legal entities scattered worldwide, many from acquisitions, and many had their own customer product management systems," Berquist said. "Those hadn't been merged and, in some cases, that was five to 10 years after the original acquisition."
That leads to the next problem: scaling to support compliance. As corporations merge, they need to discover the databases owned by the combined entity, and whether each is secure, so that the new company remains in compliance, Ted Julian, vice president of strategy and marketing at Application Security, told InternetNews.com in an e-mail.
"Organizationally, companies need a deep understanding of the state of each database, while also providing a high-level business view of their security and compliance, and this is especially true for organizations to pass an IT audit post-M&A," Julian said.
Finally, companies involved in M&As need to pay attention to their front-office applications. Most enterprises plan to integrate their back ends, but, "if you don't get the front-office connectivity done, then your M&A could fail because you won't get the cross-company synergies to cross-sell and upsell," Ingres's Berquist said.