Technology

Intertwined

Often overlooked, information-technology integration plans can make or break mergers and acquisitions.
Jon MainwaringJuly 9, 2007

As the CFO of Dassault Systemes, Thibault de Tersant knows a thing or two about integration. After all, a big part of the product lifecycle management (PLM) software applications that the €1.2 billion French company sells helps its corporate customers “see the whole life of a product,” he says. “To do that, you need to integrate what you do in design with what you do in manufacturing with what you do in post-sales maintenance with what you do in product testing and so on, and there needs to be an integration layer sitting on top of all these applications.”

This is a useful insight for de Tersant, who also applies some of those PLM principles to the 20 or so acquisitions that he’s been a part of since Dassault’s IPO in 1999. “Since we developed this PLM software [in the late 1990s], it’s not only helped us grow our revenue, but also helped us quite a lot in acquisitions,” says the CFO, who was put in charge of IT last year. That explains why every company acquired by Dassault has been required to adopt the parent company’s portfolio of software tools used for PLM product development. If they didn’t do it this way, “we would have had a bunch of heterogeneous applications and it would have been a nightmare,” he notes.

The importance of IT integration following a merger or acquisition isn’t lost on other finance chiefs. “More and more CFOs are at least aware of the importance of IT in a merger,” says Bruno Berthon, a Paris-based partner at Accenture. “But the major handicap is still the starting point — if you have processes that are well defined, you’ll be entering into integration with a sound logic. But processes aren’t well defined at most companies so a merger is just adding complexity to an already complex element of corporate life.”

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Digesting Deals

That’s not good news for deal makers, especially since the record-setting pace of M&A activity is creating pressure to capture the benefits of takeovers sooner rather than later. While CEOs and CFOs “have figured out that there are savings in IT, I think they have no clue where they are,” contends Berthon. “And so in that sense the dialogue is not completely efficient in the ability of the CFO or CEO to understand how to drive IT to both support integration and to provide savings.”

The synergies and resulting savings can indeed be significant. Consultancy Ovum estimates that IT can account for as much as 30% to 50% of post-merger savings at some companies, with software accounting for between 25% and 40% of those savings. Those savings come in areas ranging from the consolidation of data centres and streamlining of IT procurement through to thornier, more time-consuming standardisation of hardware and networks.

Critical to achieving significant post-merger benefits in IT is the strength of the integration plan. Gary Barnett, research director of Ovum, says there are two extreme routes companies can take — “one is the softly, softly approach, which lets the two merging entities run systems concurrently for a while and then see which works best; the other is what I call the Stalinist approach, which says, We’re moving to this system, and all other systems will be switched off in six months.” While there’s no one-size-fits-all approach, he says, “I have a slight preference for the Stalinist approach. Even if it might mean you’re throwing away some good things, it doesn’t leave any room for political in-fighting.”

Most plans fall somewhere between the two approaches, as is the case at Gemalto, a €1.7 billion smart-card company. Philippe Faure recalls that when Luxembourg-based Gemplus and France-based Axalto announced their merger in December 2005, planning immediately got under way to map out the integration, which would begin the following June. (Faure was Axalto’s CIO at the time.) Having first defined 15 clusters into which all IT from both companies was assigned, Faure led numerous assessments and scenario-planning exercises that weighed up technical, financial and risk factors to decide what to keep. This included the “low-hanging fruit” — such as e-mail, HR applications and IT helpdesk services — which could be merged quickly and easily.

Keeping disruption to a minimum in the early days of the new company was a big consideration for Faure. “On the one hand, you want to improve the efficiency of the company, but on the other, you don’t want to destabilise, for example, the way a factory works,” he says. So it was with trepidation that his team began early on to standardise ERP applications — something that experts say can be one of the trickiest parts of IT integration.

Mindful of the upheaval that IT changes can cause, Faure’s team decided to trim the ERP portfolio, rather than going for a “big bang” migration, leaving the company running two ERP systems — Oracle and MFG/PRO. For Faure, that was treacherous enough. Given the amount of change going on in the rest of the company, “it’s been quite a complex project, quite impacting on the business and also quite costly,” he says. While over the longer term Faure wants to see the firm migrate to a unified ERP system, for now he reckons that a combination of data-warehouse and business-intelligence tools “will hide the fact that we have two different ERPs.”

No Pain, No Gain

The challenges faced by the likes of Faure are familiar to Seamus Keating, and not only because he’s the CFO of LogicaCMG, which helps other companies manage post-merger integration, among other things. The £2.7 billion (€3.9 billion) UK-based Anglo-Dutch IT services provider is itself the result of a merger of Logica and CMG in 2002, and has since made several acquisitions. At the core of every integration plan, says Keating, is a consistent strategy addressing both the infrastructure and the applications; all that changes is the timing of the transition to applications, such as a project accounting tool that LogicaCMG developed with software vendor Agresso shortly after its merger. “Whenever we do an acquisition, we simply have a plan around what the timeframe is to get the business onto that platform,” he says. “It’s not going to be without pain, but it’s for the longer term gain. It’s really important that we can behave as one company in front of our customers.”

But integration is done with care, especially when it comes to sensitive issues such as ERP migration. Consider Unilog, a French rival bought by LogicaCMG for €930m in late 2005. Although integration took place throughout 2006, the ERP migration is only just beginning. “In 2006, [an ERP migration] was a risk that wouldn’t have warranted the rewards that we would have received,” Keating says. “It affects everyone in this organisation because our core asset is our staff’s time, and a change in an ERP system means everyone has to fill out time sheets differently. If you don’t manage that change well, you cause a lot of distraction and disturbance.”

So far, Unilog’s integration is on track, says Keating. In the first full year since the acquisition, it has produced £10m in cost savings, part of which came from moving Unilog’s businesses in France and Germany onto LogicaCMG’s systems.

Achieving cost savings is a key goal for IT integration planning, but speed is also important, says Dassault’s de Tersant. The firm’s acquisition spree has at times made investors nervous, such as when it paid $408m (€300m) last spring for MatrixOne, a loss-making US PLM vendor. Dassault immediately gave MatrixOne a major shakeup, including appointing a new CFO recruited from within Dassault, and reorganising the marketing and sales departments. Today, the US vendor is back in the black. IT, particularly in its contribution to R&D, played a key supporting role. And since de Tersant recently added IT to his responsibilities, he’s been able to tighten up the alignment between IT and big-picture M&A strategy.

Other CFOs could benefit from a similar perspective, reckons Accenture’s Berthon. “I’ve been surprised to see that there are not many CEOs, CFOs or CIOs who have a clear view of how their IT strategy can put them in the best possible situation in the case of a merger or acquisition,” he notes. And considering recent M&A volume, “this will need to become a priority.”