Reducing M&A risk with better data
A connected digital ecosystem paves a clearer path to a successful acquisition, writes Nathan Gower.
Mergers and acquisitions (M&As) are inherently complex; there is no shortage of risk in unifying organisations, no matter the size.
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If something in the process goes wrong, the consequences are vast and potentially crippling. They can range from minor delays to a complete blow-out of timelines, and from a few mismatches to mistakes that have a significant cost impact.
Examining M&A deals over the past 50 years, Aoris Investment Management found 67 per cent of the largest 100 failed, as did 59 per cent of “average” size deals.
Despite historic hurdles and renewed factors like an interest rate increase, it didn’t take long for 2022 to show telltale signs it will be another strong year for M&A activity, building on the record $318 billion in transactions announced last year.
But mass digitalisation has added new complexity for buyers to address. Companies today own more technologies than they ever have — the need to remain competitive combined with the uptake of software and services in response to pandemic restrictions resulted in digital shopping sprees. In fact, Gartner forecasts Australian IT spend to exceed $117 billion before the year is out.
As a result, organisations now grapple with the task of marrying hundreds — if not thousands — of IT systems and applications as part of any M&A process.
More than just picking which technology to keep and what contracts to cancel as part of standard consolidation, companies need to unify and make sense of terabytes of critical data — about their operations, finances, supply chains, customers, and more — that typically sits scattered across myriad systems, or worse, in spreadsheets.
Siloed data is dirty data; it’s riddled with duplication and ambiguity, which prevents executive teams from fully understanding the current state of play and limits visibility in creating roadmaps for M&As.
Although bringing digital assets together quickly under one roof is a mammoth feat, it’s one that can be significantly streamlined with an integration framework that not only simplifies the process but also reduces the risk of M&A failure.
Creating connectivity to dodge dirty data
Speed is integral to M&As. As one company acquires or merges with another, the goal is to convert on the benefits forecast by business leaders as soon as possible. That includes morphing operations, collaboration, sharing data, closing new business, and supporting customers. The faster this happens, the less a merger or acquisition will disrupt or hurt the bottom line of the merged company.
Organisations must therefore divide business integration — including employees, partners and customer services — into manageable chunks that they can execute upon much faster than attempting to connect all dots in one sweep. In fact, unless merging companies are both very small, it’s close to impossible to take a top-down approach.
Breaking down the process makes data points accessible and clear. It also allows for the introduction of a data management layer that can cross departmental and geographic borders in a secure and controlled manner. In doing so, business heads can maintain visibility over the process of a merger and the state of the new entity at any point in time.
Beyond the quality of data — and overcoming the issue of dirty data — a segmented integration process helps maintain access to information while ensuring the correct governance over it.
Munro Footwear Group, a large Australian retailer with close to 2,000 employees, took a pragmatic approach to both overcome lingering complexities from previous brand acquisitions and to enable a framework that would simplify future buys.
Connecting its existing digital systems — including customer relationship management (CRM), finance and e-commerce functions — and establishing mechanisms to quickly incorporate new ones has created flexibility to unplug and connect new applications to avoid recreating the wheel in future brand takeovers.
While larger deals can fall further, M&As among small- to medium-sized enterprises (SMEs) are no less vulnerable to risk. In fact, SMEs, the driving force of Australia’s economy, often don’t have the safety net — nor capital — to fall back on should their next buy stall.
Australian fintech WLTH has taken a ground-up approach to mitigate future challenges. With the goal to finance $1.2 billion by the end of 2022, the Brisbane-based company doubled down on its bid to increase customer acquisition. To ensure this happens as smoothly as possible and acquisitions are incorporated efficiently, the company invested in connecting its digital environment and introducing capabilities to rapidly synchronise systems and data as it expands.
As the appetite for takeovers continues, organisations need to focus on connecting systems, supporting essential use cases, reducing technical debt, and accelerating time to value just as much as the traditional priorities of the M&A process.
Whether merging organisations operate as one or remain separate entities under the parent brand, a connected digital ecosystem paves a clearer path to a successful acquisition while avoiding the growing pains that previously burdened businesses.
Nathan Gower is head of business development in Australia and New Zealand at Boomi.