According to the Boston Consulting Group, between 1992 and 2006 around 58.3 per cent of all mergers and acquisitions (M&As) not only failed to create shareholder value but actually destroyed it, resulting in a net loss of 1.2 per cent across all transactions.
One might question why businesses continue to regard M&As with favor and, from the CIO perspective, how does an M&A impact upon the CIO remit?
Typically one of the claimed benefits of M&A activity is the reduction of back-office costs. The theory is that by combining the systems of two participating companies there should be significant savings in infrastructure and headcount.
Yet the numbers above seem to contradict that theory.
The event was held only two days after HMRC admitted losing 25 million records. Of course, the creation of the behemoth that is HMRC saw the merger of two very distinct cultures and organizations and this was followed by heavy duty outsourcing contracts. CIO attendees suggested that even more insidious to the success of an M&A on such a scale is the fear of job losses and unclear changes to individual life plans.
Must M&As end in cultural and people conflict or can they deliver the value that strategic business planning suggests they should?
All attendees agreed that it's essential to get to know the pros and cons of different M&A models and the consequent cultural and economic implications of those integration models. That is, establish how as a CIO he or she can provide excellent ROI to the business -- whatever the business' rationale is for merging, acquiring or disposing.
Gordon Lovell-Read, CIO, Siemens
Gordon Lovell-Read, CIO of Siemens, has vast experience of mergers, acquisitions and disposals.
"There is no blueprint. I've been involved in 30 acquisitions, some friendly and some unfriendly. Fortunately there has been only one case where I was asked to leave the premises of the company we were actually acquiring. Most issues can be spotted early on in the diligence phase, so CIOs should elbow in as soon as possible. Early involvement will also determine whether the process should be a 'light' or 'heavy' integration.
Lightweight integration followed by heavy integration can really sweat the assets but it's a much harder process. Equally, if you start a heavy integration then you need to finish it. The alternative is two lots of costs, departments and systems."
"Determine how the CIO use potentially high integration costs to help negotiate the purchase price down.... that's a sure winner with shareholders looking for added value. The City tends to give a merged company only 100 days to deliver tangible benefits, so the CIO can really improve his stock and influence by ensuring data integration costs are factored in accurately and by talking to the shareholder's wallet," said Lovell-Read.
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