Doing an M&A Opens a Can of Technology Worms
The market meltdown has spawned a wave of mergers and acquisitions, but CIOs will face several IT challenges after the deals are completed.
As the financial crisis persists and companies snap up their peers at discount prices, they might be getting more than they bargained for. That's because apart from the regulatory and financial issues, a merger or acquisition also involves a host of technology challenges.
Just in the financial sector alone, mergers and acquisitions (M&As) have been rife. Wells Fargo (NYSE: WFC) has bought Wachovia (NYSE: WB) annoying rival suitor Citigroup (NYSE: C); JPMorgan Chase (NYSE: JPM) has bought Washington Mutual (NYSE: WM); and Bank of America (NYSE: BAC) has bought Merrill Lynch (NYSE: MER).
Those firms will have their integration work cut out for them. IT challenges arising from M&As include synchronizing financial, legal and human resources (HR) data, as well as merging multiple IT systems, tying together front-end applications and scaling to support compliance regulations.
This requires data cleansing and normalization, in addition to integration to eliminate duplicates and incorrect information. Financial data synchronization "has to be done by the first reporting period after the M&A has been completed, and this is where auditors and third-party companies and consultants make a lot of money," Berquist added.
Synchronizing legal documents and syncing HR data are the other two major issues enterprises face during M&As. These, too, have to be done during the first months after the merger, Berquist said.
"You have to worry about syncing legal entities and paying taxes and, in some cases, there's no change-of-control provisions, so you have to ship employees from the old company to new divisions of the new company, so you have to redo your HR and employee provisioning," he said.
Often, long-time employees lose their vested interests during an M&A "and employee issues and benefits can be some of the hardest things to handle," Berquist said. Also, different countries have different regulations governing what can and cannot be done when companies transfer employees because of an M&A, he added.
Merging IT infrastructures
Once those three issues are handled, enterprises have to deal with the multiple IT departments that exist after an M&A.
"Companies go ahead and do the deal and keep the systems separate over the short term, and in the long term, they put together project plans to merge them -- and sometimes it doesn't happen," Berquist said.