Mergers and acquisitions are common practice in the business world, but every time they occur, they create disruptions for all parties. There is significant amount of information needing to be considered before and after a merger or acquisition is made to ensure the project’s success. In addition, leaders are left to determine the most beneficial course of action for assimilating the organization(s) into one or another or a ‘NewCo.” process.

 

Company executives have a few options when considering the direction to take for their ERP system(s). Similar to ERP systems themselves, there is not a one-size fits all option and many factors need to be considered before making a final determination.

 

The most apparent course of action may seem to put one company onto the other’s existing software. This solution provides the least amount of disruption, leveraging the benefit of many existing employees will already be well versed in the system, eliminating the need for them to be retrained.

Adversely, employees of the company being met with the change may be resistant to giving up their familiar software and processes. It will take some effective change management to get buy-in from the affected employees that the change is what is best for the company and that they will be supported in their efforts to become familiar with the new software.

 

 

On the other hand, leaders may conclude that migrating off of both (or all) existing software would be in the best interest of all involved. Maybe the scope or size of the company has changed significantly, meaning neither software will meet the growing needs of the new entity. The “New Co” leaders must calculate all costs and benefits and the position of the owner’s investment period will likely dictate which direction to take.

If this is a long-term investment for the owner of the company, they could earn the value back out of the system and turn the merger or acquisition into an even greater profit. For an owner who knows they will take a steep discount due to the integrity of the data and wants to get the maximum value for their sale, doing the hard work ahead of time will maximize their profits from potential new owners. Unfortunately, there are also risks associated with this option.

Employers run the risk of forcing employees of a more modest industry to use a more sophisticated application if they are moving into a larger, more complex company. These complications can lead to lower adoption and risk during and after implementation. Converting to an entirely different system can also be costly to the company in terms of time, money, and disruption. Company executives must ensure that the benefits outweigh the costs before making any changes.

 

 

It may be in the best interest of all entities to leave existing, core software in place and implement a consolidation tool to bring only necessary information into a new tool, such as enterprise performance management, employing an advanced general ledger concept.

As with any major decision, there are benefits and risks to remaining constant across all entities. Major advantages to this option are that it is much less disruptive, it requires less change, it is less expensive, and it does not require the need to go big to accommodate for many geographies or accounting. It is also beneficial because it creates a possible scenario in which there is a short horizon for owners to earn their money back on their investment if they have a short timeline to receive a return on their investment.

There can be negatives to implementing this course of action. Leaders will find there is no “single source of truth” for customers to access information about their orders or for leaders to analyze across all lines of business, geographies, or ERPs. This can create inconsistency across the organization and create frustrations for customers and employees. Related, it can possibly prevent the full realization of customer access to new products across the legacy entities.

 

 

With larger platform companies, it may be best to utilize one or two key systems as the go-forward platform. This can be a compromise of ideas when companies merge that have vastly different processes. When these vastly different processes are encountered, organizations can choose to leave them on their existing software but consider an integration or reporting strategy to integrate key information into the platform ERPs, whether that be within a performance management tool, or a customer interface.

 

 

Sometimes, your solution may be as simple as looking at your options without needing to go through the process of selecting a new software or integrating one company onto the other’s platform. There are still steps that can be taken to get all value out of your acquisition.

 

 

Let’s say you have made the acquisition and then strong-armed your way through the integration period. You probably lost a couple of key people, and you might even have lost some of the people who recommended the new system. What do you do with the ERP after that?

We are most likely not going to change out the software at this stage and are just going to focus on optimization.

 

 

If you have an old application, which doesn’t do some of the things you need it to do, then you can leverage bolt-on modules, or most likely, go to market and find a 3rd party best-of-breed cloud solution.

One example specific to an investment bank would be delivering a new solution to achieve the synergistic savings that M&A owners seek from their investment. But in post-acquisition, we might find that one half the company uses JD Edwards, another half runs Microsoft Dynamics NAV. So how do we build a solution that allows us to take advantage of our new position in the supply chain?

The answer would be a third-party supply chain planning tool that could integrate with each system and bring in actual inventory and materials information, so you can see where you are making purchases across the globe. Pulling that data into a best-of-breed supply chain planning app can help maximize discounts with vendors throughout the world.

Implementing these solutions can help you leave those transaction systems running on the local level, which can keep users who have been working with those systems for years, productive.

 

Here are a few areas where cloud applications have broken the most ground and would be the best place to look first.

 

 

We hope you walk away understanding that business applications should be brought up in M&A discussions before the acquisition.

Of course, we think M&A discussions should include business applications because we are ERP specialists, but the fact is, we have seen this over and over where organizations have not taken the time, and later on the acquirer is challenged by unexpected, additional investment in technology on top of their initial investment to buy the company.

But it doesn’t need to be that way. The information about systems integration, which is known post-merger, really could have come to light before the deal was struck. If you haven’t read our article, M&A: Ask the Right Questions about Existing ERP Solutions, there we discuss exactly what that technology due diligence should be.

To actually do this right, this is an area where an expert can end up saving you millions with a very small investment upfront. Give us a call if we can help; we can even help you get in touch with your target’s ERP vendors, so you can get some information that way. We have a lot of suggestions to help you.

 

 

While mergers and acquisitions can force disruptions for all parties involved, understanding the horizon of ownership and return on investment will determine the best strategy for a merger or acquisition scenario when there are one or more existing ERPs to leverage or replace.