Five reasons why mergers and acquisitions fail... and how IT can prevent it!

By Daan van Horssen

Approximately 4 out of 5 mergers and acquisitions (M&A) are deemed failures in hindsight [1] - [2]. This is a significant number, raising the question of why so many organizations still engage in M&A activities. In this blog, I will delve into five different reasons why M&As fail and what organizations can do on the IT front to minimize the chances of failure.

IT Due Diligence, Mergers and acquisitions, Business and IT strategies

Let's get straight to the point: the five most common reasons why mergers or acquisitions often go awry are as follows:

  1. Incomplete and/or deficient (IT) due diligence.
  2. Overestimation: overestimating and being overly optimistic about the benefits that the merger or acquisition can bring.
  3. Lack of fit: both in terms of culture and strategy.
  4. Excessive focus on integration.
  5. Poorly managed (IT) integration.

The Importance of IT Due Diligence The first three reasons for the failure of a merger or acquisition are related to conducting proper due diligence. In almost all M&A processes, organizations carry out due diligence at the beginning, and that is not a bad practice; in fact, we recommend it! However, there is a difference between "doing the right things" and "doing the things right."

In practice, we often see that organizations do not perform due diligence carefully or comprehensively. Often, due diligence is limited to operational and financial data, while IT aspects are overlooked. Systems and applications may be considered, but critical topics such as aligning business and IT strategies (what is the strategy? What are the roadmaps? What are the future technology plans?), as well as cultural differences, for example, between an agile DevOps approach and an old-fashioned waterfall approach, are often underestimated and not thoroughly investigated.

Moreover, organizations frequently carry out due diligence in a fragmented manner, making it challenging to get a complete picture of the IT landscape in conjunction with other business functions. Performing a complete due diligence is difficult, but not impossible...

The IT Integration Reason number four and five for the failure of mergers or acquisitions are related to the execution of integration. In the vast majority of M&As, integration takes place; however, in practice, organizations often fail to plan and manage the integration correctly, especially in the IT domain.

Regarding the technology aspect, tasks must be carried out concerning technology platforms, infrastructure, and networks in terms of consolidation, rationalization, and standardization. This is not simple, but if executed well, it can lead to substantial cost savings over time. Additionally, data requires attention: both organizations may use different data standards and models that need to be aligned and ultimately lead to shared definitions and unified data repositories. And we haven't even started talking about security, privacy, and compliance: establishing the same control frameworks and implementing and harmonizing control measures. In short, all these topics should have been addressed in a well-executed due diligence.

In essence, everything in the M&A process revolves around executing the integration. In practice, the IT integration is often poorly planned, which is regrettable because if an organization does not handle this properly, it is only logical that the merger or acquisition will ultimately fail.

What's Next? I understand that you might be thinking: why should I even bother with mergers and acquisitions when 4 out of 5 fail? Well, making M&A successful is not impossible; after all, 1 out of 5 mergers or acquisitions does succeed. In this article (link), I have already emphasized the importance of architecture in mergers and acquisitions. Alongside proper planning and management of IT integration, conducting a thorough IT due diligence at the beginning is crucial for the success of the process.

Do you need assistance with conducting an IT due diligence, or is your organization involved in a (potential) merger or acquisition and would you like to discuss it further from a strategic IT perspective with us? We'd be happy to help, and without any obligations. Contact us at daan.vanhorssen@vka.nl or wilbert.enserink@vka.nl.

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