Get your IT ready to support your M&A ambitions

Panya Viraphan

Managing Director, Tech and IT M&A Lead, PwC Switzerland

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Ali Quenahat

Manager, Tech and IT M&A, PwC Switzerland

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Is your company considering M&A as a key driver for external growth?

If so, IT is a crucial area for you to address as it forms the backbone of all business processes today. By prioritising IT, you not only maximise the deal value but also minimise the risk of major disruptions. In this article, we share some tangible insights on preparing for successful M&A from an IT perspective.

Companies are increasingly turning to M&A to drive external growth. This trend allows organisations to expand their market presence, acquire innovative technologies and enhance their overall competitiveness. However, while M&A offers significant potential, in our experience it also presents a number of challenges, particularly in IT:

The M&A agenda may create concurrent priorities from an operational standpoint. This may require performing complex migration activities and/or making technical changes to your current IT landscape (e.g. adapting your core ERP). It’s vital that you take IT into account from the beginning, to identify potential integration challenges and ensure a smooth transition.

M&A requires specific IT M&A skills and expertise, and larger integrations or divestments can be resource-intensive. It’s therefore essential that you understand both the capabilities and the capacity that are needed to plan a smooth and timely execution process.

IT is often viewed as a ‘black box’ and many stakeholders lack a clear understanding of the existing systems and their capabilities. This could significantly increase the complexity for a future separation or integration.

“C. 70% of deals fail to realise full value due to a lack of timely IT consideration."

PwC Survey

Have a clear understanding of your IT landscape

Nowadays, the IT function is extremely complex, and a structured approach is needed to get a 360° view of the IT landscape. Here are the key IT areas and questions that you’ll need to address.

Is the current IT strategy well-aligned with the overall M&A objectives?
What existing IT projects need to be paused, adapted or accelerated considering the M&A strategy?

Pitfall:

Continuing to invest in IT projects that aren’t aligned with the M&A strategy can drain resources and divert attention from more critical initiatives, leading to wasted budgets and missed opportunities.

What IT M&A capabilities already exist in-house?
Can the existing resources effectively deliver against the M&A pipeline?

Pitfall:

M&A deals differ significantly from traditional IT projects. M&A projects move at a different pace with very tight deadlines and often with limited information available (assumption-based approach and depending on the transaction phase).

Is the application landscape scalable and agile to support business growth
Is it clear whether data are shared or dedicated? And in what formats (structured vs unstructured)?

Pitfall:

Outdated legacy systems can result in major challenges when integrating the acquired business processes. This could lead to operational inefficiencies, increased maintenance costs and an inability to make use of modern functionalities.

What is your view on potential stranded IT costs in light of a future divestment?
How would the transaction impact the current IT running costs?

Pitfall:

Organisations may underestimate the costs associated with legacy systems that are tied to the divested entity. These systems might require significant investment to maintain, or their sudden separation could disrupt operations, incurring unexpected costs.

How scalable is your IT infrastructure to support the integration of new companies?
What are the non-negotiables in terms of IT security standards?

Pitfall:

An IT infrastructure that isn’t scalable can lead to performance bottlenecks when integrating new companies, ultimately hindering growth and delaying the overall integration.

Who owns the intellectual property (IP) rights for any third-party developed software?
Are there any contractual obligations or restrictions that could impact the transaction?

Pitfall:

Contractual obligations need to be thoroughly assessed and understood to avoid unexpected costs and any potential compliance or contractual issues post-transaction.

Is the organisation ready to offer IT TSAs (which services and for how long)
What are the tools (e.g. data migration) and standards in place to support transactions?

Pitfall

Companies aren’t equipped to act as IT service providers and may struggle to get the resources that are needed to deliver IT TSAs for the required duration (i.e. in the case of competing priorities).

Start off on the right foot

While each deal has its own strategic rationale, there’s a great deal of pressure to execute it quickly and efficiently. As IT is one of the most complex and resource-intensive areas of the execution phase, it plays a significant role in the overall timeline. According to PwC’s 2023 M&A Integration Survey, 88% of successful M&A organisations consider IT to be critical.

To optimise the execution time, successful serial acquirers should be well prepared with robust IT M&A organisations, methodologies and processes. Therefore, having a clear understanding of your IT M&A readiness early on is essential to stay ahead of the curve.

Several proactive measures can be taken to increase M&A readiness from an IT standpoint:

Perform an early assessment of your IT landscape: Review your organisation’s IT systems, IT infrastructure, data architecture and IT spending. This will help you identify risks and opportunities for improvement. Based on the findings, develop actionable plans to address these areas. By understanding your current IT posture, you’ll be better equipped to ensure a smoother integration or separation when a deal arises.
Develop an IT M&A playbook: Create a comprehensive document designed to provide guidance for each key IT aspect of an M&A transaction. It should include standards, templates and best practices for conducting IT due diligence, deal planning and IT integration or separation execution.
Review your IT M&A capability model: Assess which IT M&A services should be managed in-house (e.g. IT due diligence) and which ones should be outsourced (e.g. IT TSA management). When outsourcing services, identify and select key preferred partners for your upcoming IT M&A deals, such as IT consulting firms, integration specialists, cloud service providers and cybersecurity experts.

These steps will lay the groundwork for a successful value creation journey through M&A.

Conclusion

In summary, IT is a vital component for the success of any M&A transaction, as its complexities often determine the smoothness and speed of integration or separation. By proactively assessing your IT landscape, aligning systems with business goals and addressing potential risks early on, you can streamline your company’s M&A processes and avoid costly delays. Being prepared upfront by establishing clear IT strategies, having the right tools and M&A capabilities, and simplifying the infrastructure before a deal arises can greatly enhance value creation.

Looking ahead, as the digital landscape evolves, topics like ERP migration (e.g., S4/HANA), cybersecurity and taking advantage of AI will become increasingly relevant in IT M&A strategies.