M&A deals are up. Way up. Let’s take a look at why — and what companies need to make their next merger or acquisition a success.
The introduction to Boomi’s eBook, Accelerating M&A Momentum in the Digital Age, points out that, based on data from Refinitiv, “M&A deals soared to $5.9 trillion in 2021, up 64% over 2020.” It’s worth noting that M&A activity took a huge hit in COVID-challenged 2020, so it’s fair to say that 2021’s record breaking year was somewhat the result of pent-up demand. PwC believes the pace in 2022 will remain brisk although not likely record breaking.
McKinsey & Company explains the surge as companies using M&A “to manage the still-unpredictable economic effects of the COVID-19 pandemic and find their strategic footing. They are pursuing deals to streamline their assets, establish or extend their digital capabilities, acquire top talent, and otherwise strengthen their competitive positions.” In other words, what M&A has always been about.
Through-cycle M&A Versus Big Bang M&A
It’s easy to get into the weeds when discussing the most successful M&A strategies. But the two most common approaches are “through-cycle” and Big Bang. Through-cycle M&A is a series of acquisitions shaped around a single business objective or theme. Big Bang is, well, big — the target company’s market cap is greater than or equal to 30 percent of the acquirer’s market cap.
Regardless of which strategy you choose, check out Boomi’s Accelerating M&A Momentum in the Digital Age
It’s also possible to the combine the approaches and many companies do. The Big Bang acquisition becomes the “hub” around which smaller acquisitions form a supporting cast.
Why Do so Many Mergers and Acquisitions Fail?
As attractive as the rewards of mergers and acquisitions are, many times they fail. Seventy to ninety percent are the most often cited figures. (Thank you Harvard Business Review.) And as frequently as these figures are thrown around, there are nearly as many theories as to why they fail. People problems, technology issues, technology issues causing people problems, incompatible cultures. As one blogger on Forbes proposed in the title of his post, “Most Mergers Fail Because People Aren’t Boxes.”
But all other variables aside, there’s no doubt that integrating IT systems is critical to M&A success. When two companies join, or one acquires another, the resulting entity often ends up with two of everything. CRMs, ERPs, finance and accounting apps, supply chain and human capital management platforms, etc. How companies navigate that initially chaotic environment is critical.
Getting bogged down in a morass of duplicate systems is a real momentum killer. The deal’s initial excitement, based on the promise of expanded opportunities, can quickly fade. Ideally, the new company hits the ground running on Day One. But staggering and stumbling are more common.
Best Practices for Post-Merger Integration
Integration speed is an important consideration for keeping post-merger momentum high. The faster an acquired company can be connected to the parent, the better existing customers can be onboarded to new processes, and cost savings can be found by eliminating duplicate licenses and reducing manual work.
Quanta Services acquires up to 5 companies every quarter. Without Boomi, that integration process would put a strain on their IT teams. Boomi has helped them complete post-merger integrations in 1/4 the time it previously took.
Secure File Exchange
Immediately post-acquisition, large amounts of sensitive data may need to be shared between the target and acquiring company: employee records, inventory data, and financial information. With secure file transfer portals, that data can be shared securely and with a full audit trail for financial and other regulatory compliance needs. Guaranteed file delivery also creates confidence for EDI and partner file exchanges from the acquired company’s existing business relationships.
Move and Unify Organizational Data
Integrating data is essential to creating a unified sales motion and connecting operations effectively. By connecting the acquired company’s ERP, CRM, and HR data with Data Hub, customer and supplier golden records can be established to de-duplicate records, billing, and communication.
Because new acquisitions will operate with a different data model than the existing company, it can be prudent to start with read-only sync so that data pipelines can be fine-tuned for accurate data delivery before write permissions can cause internal disruption.
API Management: Migrate Applications and Retire Duplicates
A merger can also expose a company to new API sprawl risk: multiple management tools and ad-hoc APIs can be exposing services unintentionally. With a developer portal and automated API discovery, federated API management can be used to expose the acquired applications with role-based access control, manage the lifecycle of acquired APIs, and provide newly-onboarded developers with the tools they need to continue their work.
Turning M&A Excitement Into M&A Momentum
When faced with a complex, merged technology ecosystem with too much of everything, many organizations decide to “rationalize.” To move from, say, two CRM systems to one. Sounds good in theory. But in practice it typically requires months and, while it’s happening, employees who routinely use one or the other system are in the equivalent of a three-legged bag race.
They can’t do their jobs without a lot of time-consuming, momentum killing workarounds.
M&A experts at Boomi suggest another approach: use an iPaaS to allow vital data from both companies to be exchanged and viewed through a single pane of glass. Rationalizing applications and the economies of scale that come with M&A deals are critical. But customers should always be the primary focus for building M&A momentum.
In an M&A scenario, your first customers are your employees. It’s vital to set the stage for success as a new, cohesive entity by providing a smooth onboarding experience. With an iPaaS, you can connect applications and processes such as payroll, benefits, email, and more to help your new employees be productive from Day One.
To sum it all up, managing the integration of IT systems and data with an iPaaS lets you sustain short-term M&A momentum and maximize value over the long term.
Read the Boomi eBook Accelerating M&A Momentum in the Digital Age for more insights into how thoughtful integration can help your business with successful mergers, acquisitions, and divestitures.