While mergers and acquisitions tend to get bathed in glorious-sounding press releases that extol the synergies -- always the synergies -- between two companies, and how incredibly well-served the customers of the acquired company will be by the acquiring company, M&As tend to be very risky propositions, A lot can go wrong, and does go wrong.
At least 70% to 80% of M&As actually fail, relates Dr. Cort Coghill, director for education operations at the FEAC Institute. Reasons for M&A failures include "buying an overvalued company; clash of corporate cultures; loss of talent; and failure of the acquiring company to understand the business (or market) they are buying."
That's why careful planning and analysis are essential -- especially during the due diligence phase. How will the technologies of the two companies mesh? How will information flow? What will need upgrading and replacement? What will be the fastest way to get everyone online, and on the same page, as quickly as possible?
For the most part, enterprise architects, who should be a part of the due diligence stage, aren't necessarily included. They do get sucked in, however, after the deed is done, when the integration work must be sorted out. .Forty-four percent of EAs in a survey released by LeanIX indicate they are included in the due diligence phase of M&As. The time the EAs get most active is in the post-merger integration phase, of which 89% report involvement.
"There's a clear reason why EAs are leveraged most often for post-merger integration," the survey's authors state. "By specializing in shaping and managing complex IT landscapes, EAs are a perfect point of contact during the merging, acquiring or carving out of business units as they can foresee the effects of M&A activities on IT structures. Additionally, since the post-merger integration phase is regarded by many as the most critical M&A stage, many companies choose this phase to draw upon as much expertise as possible to ensure a successful M&A project via a post-merger integration."
Enterprise architecture is vital to M&A success, as "the merging entities have a shared burden in defining the new or changed business model; changes in their go-to-market strategy; or customer journey," Coghill explained. "Merging companies share an interest in articulating organizational structure and behavior from a strategy, operational, regulatory, and financial perspective. In most companies, enterprise architects have claimed their place at the table when it comes to mergers and acquisitions."
In LeanIX's survey of 130 EAs, 80% indicate they are involved in at least one phase of the M&A process -- primarily during post-merger integration. EAs, if actively involved, can increase the overall success of any M&A effort, the survey's authors conclude. "Not only must the infrastructure of different units become harmonized and/or separated, but informed calculations have to be made to alter applications, products, and business processes -- a process requiring all technical dependencies to be accounted for," they point out. "It's imperative that these decisions never lead to interruptions in business continuity nor reduce the value of the M&A or carve-out project. In companies with highly complex IT landscapes, technological integrations are a critical factor in M&A processes, especially when companies rely on virtual communication."
The extent to which EAs are involved in M&A activities varies greatly. More than a third report being involved in only a single stage of the whole M&A project; another quarter participate in two stages. Only 20% of architects are consulted by their companies in three or more stages in the M&A process. Still, 20% of respondents do not participate in any M&A activity whatsoever.
The typical stages of the M&A process include (1) identification of possible candidates for acquisition or (2) business units for carve-out, (3) due diligence checks, (4) post-merger integration, (5) or the implementation of carve-outs. At almost 90%, most EAs are involved in M&A activities to support post-merger integration efforts. Less than half of EAs provide support during due diligence or to implement carve-outs. EAs are also not often consulted for identifying possible candidates for M&A projects or carve-outs.
What types of tasks do EAs need to undertake to help their companies move through the M&A process? Nearly all EAs surveyed, 94%, value establishing transparent IT landscapes. "Without such transparency, companies lack the very basis to make sound architectural decisions, especially when harmonizing IT landscapes," the survey's authors state. Another 88% point to their role in application rationalization, which consists of eliminating redundant applications and services.
At least 84% also have a role in developing a target IT landscape, while 74% get involved in charting application roadmaps. "Establishing a framework for both the future architecture as well as for all individual applications is regarded as an important part of any post-merger integration effort," the survey's authors point out.
Other critical roles played by EAs in M&A scenarios include creating a common business capability map (*\80%), and simulations to help plan for Various scenarios and plans for post-merger integration (70%).