M and A acceleration and the CIO's role

Although many may claim to have done so, nobody could have predicted the severity of the current economic situation. The domino-effect continues and it is becoming more and more difficult to determine whether a business partner, competitor or service provider will be in existence next month or even next week. 

As a result many mergers and acquisitions have become survival tactics rather than long-term investment strategies. According to research firm Dealogic, this year $271.9 billion (£155 billion) worth of mergers had already been logged at the start of March. This is almost three times the value recorded a year before. 

Mergers and acquisitions once involved many months of due diligence and careful planning for the two (or more) parties to determine how to ensure collaborative fit, profitable growth and rationalised assets and overheads. However in today’s rapidly re-shaping financial markets, firms are being thrust together, sometimes by external forces and sometimes with poor intuition, and have minimal time to adapt under high pressure. Too often, we read, they have had no audited and researched view of even the baseline from which their adaptation was to begin. 

In any post-merger or post-acquisition scenario, whatever the timescale allowed, a key requirement is to maintain ‘business-as-usual’ - to make sure that the merged organisations do not lose customers through poor service and market perception that future reliability is at risk. Where, as we have too frequently seen in recent months, shareholder and investor confidence has been severely shaken by market forces originating for reasons other than the merger itself, this business retention challenge, although greater, is even more of a critical priority.

M&A announcements and speculations tend to throw the immediate media spotlight onto possible job losses. Certainly this consequence, which is often tragic for the individuals implicated, will always be a factor for boardroom consideration, but in a fast-build organisational reconstruction, it is an unrealistic priority. At the earliest stages it is impossible for these organisations to know what their real capacity requirements will be in terms of human resources. 

During the merger upheaval, an asset that is rarely commented on in the media is the technology that financial services companies rely on to function. The dramatic acceleration of M&A activity has made CIOs think differently about the services and systems they have in place when M&A scenarios arise. 

The initial (correct) decisions are to cancel any discretionary and/or cosmetic systems developments and to defer (as far as possible) any non-mandatory standards and other compliance programmes. 

Thereafter, to maintain ‘business-as-usual’ in the consolidated enterprise, and deliver post-merger revenue benefits, ripping and replacing systems is not a realistic option, as both costs and operational risks would be prohibitive. M&A events give CIOs an opportunity to take a fresh look at optimising their existing technology. Considerations include:

Consolidating the financial and operational management of the merged enterprises into one preferred suite of central systems without invasively impacting the separate source systems

• Bringing out-sourced services back in-house
• Offering strong in-house processing solutions as outsourced services to competitor companies
• Maintaining the launch of new portfolio products that had reliable pre-merger business cases
• Re-evaluating the cost-benefits of extended straight-through-processing

To address these considerations, the CIO’s reality-check breaks down into three steps:

 I have technology infrastructure legacies from (at least) two companies.

1. What I have is not perfect, but it’s what I have, and I will get no new investment in the short term.
2. By using current business process integration technology how can I:...

·         Provide my executive colleagues consolidated and effective control over their expanded domain?

·         Extend the life of what I have?

·         Expand the business usage of what I have?

·         Reduce my operating costs?

·         Help to maintain and grow revenue?

Well-judged and well-executed answers to these questions will make substantial contributions towards successful M&A outcomes.