Businesses can no longer afford to view IT as a back-office function if they want to achieve maximum return on deals, according to Ernst & Young’s new survey IT as a driver of M&A success.
The study reveals that executives too often place inadequate focus on IT leading to value erosion or even deal failure. In particular, IT is brought in too late or not adequately considered as part of strategic rationale of a deal.
Instead businesses need to view IT as an enabler rather than a cost center to reap the full rewards from their transaction activity, including capturing synergies.
This survey – conducted by mergermarket on behalf of Ernst & Young – examined the views of 220 senior corporate and private equity executives in Europe who were involved in an M&A transaction in the past year (I thought it was over the past 2 or 5 years?). Respondents were asked about where IT fits into the transaction process – including due diligence, pre-deal planning, integration or carve-out processes.
Respondents’ feedback highlighted a direct link between IT issues and cost synergies. More specifically, respondents suggested that IT integration and carve-out processes are often costlier and more complicated than expected.
“IT is changing how companies carry out their business, how they deliver goods and how they provide services,” says Tony Qui, Partner and leader for IT transaction services at Ernst & Young
LLP. “The biggest issues we see relate to overall information management. This is where companies will see the highest impact on users.”
Findings:
Only 50% of respondents said they typically involve IT in the transaction process compared to almost 80% for finance.
Almost half of respondents (47%) admitted that more detailed due diligence could have prevented value erosion and one in five respondents acknowledged that IT is one of the most challenging factors to deal with in the post-transaction stage.
Other key highlights from the survey include:
– 62% of corporate and 78% of PE respondents say they did not put a significant emphasis on IT as part of their approach to transactions.
– 51% of respondents said their time estimates for IT transactions were either too conservative or too generous. 49% of respondents said the same thing for cost estimates
– 53% of corporate and 60% of PE respondents say they are likely to enlist third-party support post-transaction.
Source : Merger Market
