Cloud can enhance IT integration and value creation during M&A
During post-merger integration processes, the IT function can be one of the most challenging to successfully transition to the newco. Debasish Sarkar, a Principal at Accenture Strategy, outlines how cloud can act as an enabler during M&A integration/separation, not just speeding up the process but also as a catalyst of enhanced value creation.
Time is of essence in an M&A transaction. The sooner the execution, the earlier the synergy or value realization. As a result, organizations seek means and adopt strategies that they believe will help them fast-track the execution. One such strategy is to consider leveraging cloud services.
Faster implementation, easier management, flexible usage model, enhanced IT experience are checks that are luring organizations towards cloud. Given its benefits and ease, cloud-based working can be an excellent strategy to catalyze the IT integration and separation journey.
Four ways cloud enables M&A
Cloud acts as an accelerator during an M&A transaction by enabling the integration and separation requirements. Players with well-defined technology strategy and existing cloud capabilities may most likely prefer migrating and integrating target’s landscape over cloud.
Additionally, acquirers or sellers undergoing transformation of their own IT landscape may re-examine their existing migration plans by adopting cloud.
Four drivers why cloud and M&A should go hand-in-hand:
Enhancing transaction speed: Access of cloud-based services such as Infrastructureas-a-Service (IaaS) and Platform-as-a-Service (PaaS) can enable rapid lift and shift of infrastructure migration thus enabling the transaction speed. Moving to a cloud- based ERP system can be a faster and less costly solution compared to a on-premises hosted solution. Integrating cloud in the M&A journey can expedite synergy realization.
Optimizing transition spend: By translating large capital requirements to operating expenditures, cloud helps create a leaner integration and separation cost sheet during a M&A transaction. Cloud solutions help achieve better resource allocation by shifting attention from integration/separation activities to more strategic activities thus improving overall resource utilization.
Boosting transaction agility: Incorporating cloud technologies in M&A execution helps reduce Transition Service Agreements (TSA) timeline as it allows the buyer or the seller to reach the target state of the acquired or divested company much faster. Thus, it helps reduce TSA cost and support a more flexible business model by reducing the dependency on the seller’s IT landscape.
Increasing transaction value: By increasing transaction speed and reducing transaction spend, sellers can achieve a higher valuation of the carved-out entity by increasing its business agility and reducing its operating costs. Buyers also start realizing the synergies of the acquired entities faster without the need to depend on expensive TSAs.
Bringing forward integration value
The traditional approach of post-merger integration focuses on the transaction first followed by transformation to overcome the challenges of legacy IT platforms drawbacks. Using the cloud, however, can act as a stimulant to accelerate deal value by helping achieve transformation during the transaction lifecycle.
By utilizing the benefits of cloud, the approach is shifting to perform transformation during the M&A planning and execution phases. Companies are using transaction to digitally transform their business which increases the value of the divested entity in a carve-out. Similarly, it brings benefits during acquisition by increasing flexibility of the acquired business model along with reducing IT one time and operating costs.
Private equity firms leverage greenfield cloud implementation for the acquired companies where faster growth and performance are the main drivers of the investment. Strategic investor and financial buyers adopting this “transform while transact” approach will gain competitive advantage by enhancing value creation during the transaction lifecycle by merging company’s cloud and M&A journey.
An article by Debasish Sarkar, a Principal in Strategy & Consulting division of Accenture in India. The views expressed in the article are on personal title, and not necessarily those of his employer.
