After the summer break, M&A activity seems to be stirring. It’s been a long wait, but all the signs suggest that pent-up demand in the UK deals market is about to be released. As a new, growth-focused Government settles into Downing Street, the signs of life are certainly there.
On the face of it, the stats tell a different picture. According to PWC, for the first half of 2024, deal volumes were down 20% on the same period in 2023, but deal values increased by 66% in the period. This was driven by some major deals in the consumer markets and financial services sectors (such as Nationwide’s £2.9bn offer for Virgin Money). While clearly still volatile, the signs are the market is beginning to return, with investors’ confidence growing.
Conversations are being had and plans are being made. Corporations and private equity are desperate to transact after waiting for the conditions to be right. Corporates have funds to invest and a new appetite to transform and grow. On top of that, private equity also wants and needs to get moving. Pent-up demand and supply are about to be released.
Companies make acquisitions for many strategic reasons, aimed at enhancing their competitive position and achieving long-term growth. The specific motivations behind an acquisition will vary depending on the company's strategic goals, industry dynamics, and competitive landscape. However, the overarching objective is typically to create value for the acquiring company and its shareholders by leveraging the strengths and assets of the acquired company.
Underpinning this are the financial benefits from increased revenues and profitability, through market expansion, product/service expansion, or cross-selling opportunities and securing economies of scale to deliver cost synergies and operational efficiencies Technology synergies can be a powerful driver of these synergies and efficiencies, whilst also enhancing their competitive position in the market. Identifying synergy savings from technology involves an analysis of both the acquiring and acquired companies, focusing on areas where their combination can lead to increased economics, efficiency and effectiveness.
Identifying M&A synergy opportunities
This is where CoPerceptuo offers the CFO and CTO of acquiring companies an invaluable service to identify, plan and execute due diligence and the resulting benefits to be derived from combining two entities. Here are some examples of where CoPerceptuo can identify these synergies:
Cost Synergies
Operational Synergies
The CoPerceptuo approach
To avoid or minimise operational disruption, the systems and processes used by the target business and its acquirer must be carefully aligned. There are several elements comprising an IT integration. There is the IT infrastructure, IT-enabled business processes, along with data and applications, all of which come with their own challenges. It's important to consider the impact of technology on operations well in advance of any merger.
CoPerceptuo offers a data-driven approach to identifying and quantifying the synergies and estimating cost savings, removing the arbitrary approach of ‘we need to find 20% reduction in our technology spend’:
CoPerceptuo can then guide the post-acquisition integration strategy and help create the plan to realise the potential technology synergies:
Managing post-acquisition integration risk
A business's IT capabilities are one of its core strategic assets, but the merging of systems and their management during an integration can be a significant challenge. The success of the overall M&A process can be strongly influenced by the success of the IT integration, as the technology and processes involved often have far-reaching effects on every aspect of the business.
The importance of understanding IT integration risk and the impact of technology on operations cannot be overstated. Risk is a question that should be addressed before, rather than after the merging or integration of any businesses has taken place. Consultation with key personnel with the technology teams should be viewed as a priority. This utilisation of knowledge of their respective IT systems can save numerous avoidable headaches further down the line.
This risk during an IT integration can be categorised as three types:
Technical level risk
Technical-level risk relates to deciding which IT systems to use across the combined entity. To avoid disruption, assessment of technical risk is essential, checking that the business transactional processes run smoothly and that the protocols for data confidentiality and systems availability are upheld across the organisations.
For example, it's important to recognise that moving data across organisations can itself be costly, time-consuming and ultimately a major disruption to business-as-usual. The migration of data when NatWest was acquired by RBS was handled by over 4000 people but made huge savings – £1.1bn in annual savings were achieved.
Business level risk
Business-level risk assesses the suitability of currently used technologies and identifies any benefits from technology integration. It addresses any legal compliance issues, and how systems can impact goals relating to revenue.
Application level risk
Finally, application-level risk plans for integration, operational readiness for any prospective changes, and ensuring that processes remain coordinated for optimal reliability are crucial. it's important to establish what the IT teams expect or require from the integration process, such as any infrastructure needs. A clear plan should be devised, with accommodation for differences in infrastructure, or adoption of new processes, and establishing how migration will be handled.
Technological convergence suffers equally in the absence of swift integration. The complexity and cost of merging IT systems escalate with time turning what could have been a straightforward unification into a Herculean task. Operational efficiencies promised by the merger get lost in translation between disjointed systems, impeding decision-making and inflating operational costs.
Summary
Prompt post-acquisition integration transcends mere operational necessity; it is the linchpin for realising the strategic, human, technological and financial synergies that motivated the acquisition, setting a solid foundation for the combined entity's future success.
Moreover, the emphasis on cultural integration within the technology sphere highlights
the recognition that successful outcomes are not solely about integrating systems and processes but also about aligning organisational cultures. Technology plays a key role in this aspect, providing platforms for collaboration, communication, and knowledge sharing that can help bridge and foster a unified corporate identity.
As such, technology integration efforts are increasingly being designed to support not only technical compatibility but also cultural cohesiveness, acknowledging that the human element is critical to the success of any merger.