A strong US dollar and healthy monetary policies are likely to spur on transactions for European mergers and acquisitions (M&As), which are set to increase from $621bn to $936bn by 2017. At least that’s the view of Sebastian Krause, General Manager for IBM Cloud Europe, and it is thought that companies are using mergers and acquisitions to grow, to achieve economies of scale, expand product portfolios, to globalise and to diversify. Markets that will particularly show strong M&A activity include Spain, Italy and Germany.
However, the UK isn’t immune to them. Take the merger between the large American market and event data analysis corporation IHS, and Nasdaq-listed British financial information services company Markit. The new firm will set up its headquarters in London, and together as a merged entity they plan to “create a global information powerhouse and a platform for innovation that drives future revenue”, says Lans Uggla – the Canadian founder and CEO of Markit in an article published by Growth Business magazine. To set it out on a good course, the new firm will be led by IHS chairman and CEO Jerre Stead until his retirement in 2018. He hopes that the transaction will enable them to become a “powerful provider of unique business intelligence, data and analytics” for the benefit of a broad customer base.
Integrating change
Many M&As, unless they involve the purchase of a company for asset-stripping, are likely to involve change and the need to integrate IT systems. Two IT departments may need to become one, and to achieve this they are likely to need to re-organise themselves to develop a new strategy to ensure that their disparate systems work seamlessly together with increased efficiency. In the course of developing their M&A strategy they will need to realise the value the technology brings, while considering the headaches it can bring the new entity.
Deloitte, for example, believes that technology is also going to disrupt the banking and insurance sector. Disruptive technologies can offer opportunities as much as they can create hurdles. Those that embrace them innovatively can gain a competitive advantage, while a failure to consider how they can change a market’s dynamics can lead to failure. Change management is also required to ensure that members of staff across the newly merged company accept the any systems that are implemented as a result of the tie-up. So yes, the old adage of ‘people, process and technology’ is vital to ensure that the merger becomes a success story because people don’t like change, and so change agents are required to ensure that the benefits of the transaction are clearly and properly communicated with absolute clarity. There may even be a need to create a new corporate culture – perhaps one that embraces cloud technology and new ways of working to foster collaboration.
IT survival
Mergers and acquisitions particularly worry departments such as IT, and with good reason. A Financial Times’ report titled ‘Banks Increase Outsourcing of IT Jobs In [An] Attempt To Cut Costs’ cites trades union Unite, which claims that in the past few months 1,200 IT and back office positions in the UK have moved overseas. HSBC, for example, cut 840 jobs in the UK and created similar roles in markets such as India, China and Poland. However, the banks faced criticism after a system error in August 2015 delayed about 275,000 payments to customers. Such initiatives nevertheless aren’t always about cost-cutting. Sometimes they are about creating a 24/7 ability to operate.
David Trossell, CEO and CTO of data acceleration company Bridgeworks explained how information technology has also had a disruptive influence on traditional ways of working: “Much to the consternation of some of our largest and long established worldwide financial industries, the internet has fundamentally changed the way we undertake business with them as businesses and consumers, and it has driven the pricing into the hands of the consumer with its ability to contrast and compare a different offering at the click of a button.”
He pointed out that the sector also faces more stringent regulations than other industries, increased competition from internet only institutions, and this has subsequently led to pressure on profits and growth.
“Typically, in market conditions such as these, institutions look to mergers and acquisitions to gain market share, reduce costs or to enter into new markets and locations,” Trossell added.
He stressed business and service continuity is therefore crucial, and so this places IT at the heart of every organisation – large and small – during the merger process and after its completion. Yet the IT department, as demonstrated by the outsourcing trend, is one of the first areas examined in the pursuit of cost-savings.
Trossell therefore asked: “So where does this leave the poor old IT departments?”
In his view, the answer is that every change is an opportunity. Change offers a chance to re-invent oneself. This principle applies to global corporations and SMEs. Mergers and acquisitions nevertheless lead to a half-full and half-empty moment, and to address this situation there is a need for root and branch review of both IT departments.
He believes this process will involve cherry-picking the best from both entities, or the formulation of a completely new IT strategy that will require a number of new investments now in order to reap greater savings and rewards in the future. They could also elect to defend and protect their existing IT environments and strategies, but this position might cause conflict. Such a stand as this could also increase costs in the long run and ultimately lead to failure. Conversely a joined up IT strategy could lead to the combined success of the merged companies.
The cloud’s role
So what role can cloud computing play in ensuring that this year’s M&As in, for example, the financial services sector are seamless? Trossell said: “With the focus on cost savings, if it is not already in place, it is now time to consider the option of moving some applications to the cloud because this gives the flexibility to instantly increase performance if an existing application is rolled out across both organisations, and it offers time to focus on the future strategy with little or no capital expenditure.”
However, getting data into a public, hybrid or private cloud can be troublesome for both organisations. Cross-border mergers make this process even more complicated because network latency can often increase with distance. So the two organisations will have to consider and find an answer to the following data management questions – and they also need to apply them if they decide to outsource their IT to third parties across the globe:
- How do we move it?
- How do we store it?
- How do we share it?
- How do we validate it?
Part of the answer is to take a completely different approach with hybrid, public and private cloud storage and computing. In his view they present a golden opportunity to take a completely different approach in order to gain flexibility with little effort.
“However, one of the challenges of moving to and from or between clouds is the effect of latency on the data throughput,” he warned.
So the merging organisations will also need to consider how they harmonise their domestic and global back-up, disaster recovery and datacentre strategies.
While it might seem sensible to converge all of the computing functions in one datacentre, Trossell thinks that there should be some consideration “to the requirements of holding the data locally for time critical applications such as trading platforms”. The benefit of this approach is that it can offer disaster recovery protection.
For example, he explained that by taking this approach healthcare provider CVS saved $400K. To achieve such efficiencies as this, faster and more secure data portability, enhanced data consolidation, more effective disaster recovery and more successful cloud migration projects, and more, he recommends the merging organisations should involve the C-Suite in any IT merger plan.
Working as a team they all need to consider what will work well in the cloud, because not everything does, and so they should quantify the risk factors involved with it. He also stressed that security is of paramount importance, and that both organisations shouldn’t neglect the fact that they must think about the data, its storage and speed of availability in order to successfully support cross-border and domestic mergers and acquisitions.