It Takes Two to Tango: Cloud Meets M&A
Mergers and acquisitions (M&A) are key to improving companies’ competitiveness and organizational performance – provided they’re completed fast. And these days, IT plays a central role in transactions of this kind. However, IT integration remains a major challenge in M&A. This month, we’ll take a closer look at how cloud solutions can help you master this challenge and reap a variety of direct and indirect benefits.
Diving Deeper into Cloud and M&A
Back in March, I outlined some of the ways in which combining cloud and M&A strategies can help accelerate integration between acquirers and acquirees. Given the central importance of digital technology for today’s businesses, it’s no surprise that merging both parties’ IT is at the heart of the integration process. And when you consider that some 45% of expected benefits from M&A transactions depend directly on effective IT integration, it’s critical that companies get this part of the puzzle right.
This month, I want to take a closer look at how cloud computing can support IT integration in M&A, consider the associated prerequisites, and suggest ways in which businesses can ensure the success of their combined cloud and M&A journey.
Moving to the Cloud: Turning an M&A Deal Breaker into a Deal Maker
So, how can cloud computing smooth the way to IT integration? First, it stands to reason that if the acquirer and acquiree share a common, standardized cloud platform, they’ll find it a whole lot easier to combine their respective IT infrastructures, speeding up integration considerably.
What’s more, with a public-cloud IT landscape, there’s no need for additional hardware – saving the acquirer both time and money during the critical integration phase. Another advantage of cloud IT resources is that they can be allocated as needed and are generally interoperable. Plus, cloud apps can be rapidly configured to meet changing needs and easily scaled up as the business grows.
Driving Innovation, Maximizing Value, Supporting Long-Term Strategy
This configurability and scalability also enables companies to continuously update their processes and innovate operations to meet ever-changing customer requirements – ensuring that their IT delivers maximum value at all times.
Last but not least, by simplifying and standardizing enterprise IT landscapes, cloud computing lays the foundation for a strategic blueprint for long-term success. In this respect, cloud does much more than just support isolated M&A transactions; it creates a business and technology platform for all future acquisitions.
When Should You Consider Cloud During Your M&A Journey?
If you’re embarking on an acquisition or acquisitions, the above benefits are compelling reasons to integrate your M&A and cloud strategies. But whether this integration delivers on its promise generally depends on two factors: the maturity of your cloud program and the size of your intended acquisition.
If your cloud journey is already well advanced, and if your intended transaction is small, marrying cloud and M&A makes excellent business sense. Companies with a mature cloud program can dramatically accelerate integration and the achievement of synergies by migrating the target’s data and systems directly to their established enterprise cloud platform – realizing economies of scale and making quick wins.
Boosting M&A/Cloud Integration via a Greenfield Approach
The more complex a company’s tech landscape, the more likely it is to hamper a combined M&A and cloud journey. In such cases, a greenfield approach may be the best solution – especially where divestitures and carve-outs are involved.
This separation strategy, which involves moving business units or even entire entities into an existing cloud environment, is particularly attractive for private equity companies and can significantly enhance the value of a divestiture or acquisition. What’s more, taking a greenfield approach can enable the acquirer to eliminate dependency on technical service agreements with the seller.
A fresh start of this kind not only boosts cost-efficiency and offloads unwieldy ballast; it also drives innovation in ways that integration alone cannot. A greenfield approach goes far beyond IT benefits, delivering business benefit by enabling a new business model, a flexible way of operating, and faster time to market.
It’s Not Just About Direct Gains
In addition to these direct benefits, migrating an acquisition or divestiture to the cloud for future M&A enables you to reap indirect benefits, including the following:
Greater speed: A mature cloud program can slash the time it takes to realize benefits/synergies while providing a significantly more flexible business model.
Improved financials: From reduced operating expenses to lower capital requirements, cloud helps create a leaner balance sheet through standardized software packages – in fact, you can expect to reduce technology infrastructure costs by up to 30%.
Better resource allocation: Cloud solutions shift attention to strategic activities (such as integration and transformation) that add ROI.
Stronger, faster security: Cloud computing offers a secure operating environment. What’s more, when the acquirer’s and acquiree’s cloud-native security system is run by the same public-cloud provider, security can be synced in a matter of weeks. Better yet, security standards are often an attractive proposition for prospective buyers, especially in heavily regulated industries.
Smoothing the Way Forward
Integrating your M&A and cloud journeys can be challenging. However, there are some proven steps you can take to help you move ahead more quickly and easily. Experience shows that it’s important to get your Chief Technology or Information Officer on board from the get-go – and to regularly involve them throughout the initiative.
Another key enabler is to streamline wherever possible: For example, the more vendors you have, the slower your integration and the lower your potential for innovation will be. That’s why I recommend a single-vendor, full-stack approach, wherever possible. And because security is paramount, you should always involve your cybersecurity team from the very outset.
Interested in finding out more about how best to synchronize your cloud and M&A journeys? Feel free to reach out to me. I’ll be happy to answer any questions you may have.