Mergers and acquisitions: how cloud helps the process

Mergers and acquisitions

The impact of cloud on mergers and acquisitions seems likely to increase during 2013 and in a number of ways.

The research and analysis firm IDC is predicting M&A activity amounting to billions, as cloud offerings become central to the products and services provided by more vendors of packaged applications and they battle it out with cloud pure plays for dominance in some of the major business software markets. In addition to this, and both inside and outside the technology industry, the significance of cloud software and services will also increase in the management and the minutiae of post-M&A IT integrations.

IT infrastructure can be complex, covering hardware, networks, software and even collaboration between people, and some of these components (and the organisations utilising them) can benefit more, and more easily, from cloud technologies and techniques than others. “Some of the benefits are straightforward and self-evident,” says Neil Cross, managing director of Advanced 365 a UK outsourcing and managed services provider (and no stranger to M&As). Adding another organisation or doubling the size of an implementation, for example, can be complex and time-consuming with traditional corporate information systems; less so with pure cloud.

Ramping up server numbers and storage capacity or increasing mailbox numbers and adding seats for the finance department are all relatively straightforward when these resources are located in the cloud. “The very fact that cloud is built with integration in mind allows newly acquired businesses to either join their existing estate considerably more quickly or to take advantage of applications as a service from the cloud to replace their own services,” says Matthew Smith, UK director of business architecture at Software AG, an enterprise software company with M&A expertise that’s based on its own acquisitions experiences and those of its clients.

The cloud focus on connectivity may be making a virtue of a necessity, but integrating disconnected systems and the associated data is getting easier. Both cloud vendors and traditional software vendors are individually and collectively doing their bit to ease communications between applications inside and outside the cloud and across the great divide with a mixture of APIs, product-specific connectors, and a growing range of generic SaaS-based integration tools, which is making it progressively less complex and time consuming to integrate applications, data, and even business processes.

Software AG, for example, offers its webMethods Cloudstream technologies to enable organisations to integrate applications and manage the data flows between cloud infrastructures, whether they are private, hybrid or public ones. SaaS-based tools such as Boomi AtomSphere from Dell allow customers to connect any combination of cloud, SaaS or on-premise apps with no appliances, no software, and no coding. While the SaaS integration solution from Adeptia uses a services-based (SOA) approach that allows organisations to automate business processes that interface with on-demand apps, rather than simply moving data.

Some advantages are less self-evident. ‘Supporting M&A activity with cloud techniques can add some significant improvements when it comes to IT integration between both hardware and software, but also, more importantly, staff collaboration,’ says Smith. Organisations that have moved to a model where cloud includes collaboration capabilities – such as social business process management – can have significant advantages as newly merged entities, he suggests, because new co-workers can visually see and work together on joining up their processes.

All of this can make it easier to avoid the slow down in capacity and IT performance that has traditionally occurred during the merger of IT departments and information systems. ‘You don’t need to think about hardware or question which apps are being used, you just need to put together a 30-60 day plan for migration and then get on with it,’ suggests Cross, while Smith points out that it’s not all roses, as some organisations will have core legacy systems that don’t sit well with cloud: ‘Typically, these businesses will need specialist help from partners and software houses to wrap their apps or help them migrate to a new cloud home’.

Cloud isn’t a cure-all – any more than any other resource delivery mechanism or technology platform is, and some of the IT problems associated with M&A are perennials. Very few organisations can escape the use of the various ‘desk drawer’ systems such as spreadsheets and sub ledgers, which store data outside the company’s main IT systems, where people may be relying on them to make critical operating and management decisions. But as decisions on cloud implementations are increasingly being made (and financed) at an operational level, even the post-implementation of desk drawer systems looks set to become less problematic.

Just how much impact cloud has on any M&A does, of course, depend on the organisations being merged – plus a host of IT-related factors ranging from the existing infrastructures to the new infrastructure being created. Cloud technologies and techniques make some IT-related aspects of M&A easier to manage but they are not without challenges: off-boarding employees from SaaS applications is not always straightforward, for example. The analyst Gartner reports that when employees leave a company, the HR department can struggle to revoke their cloud access and their corporate network access at the same time where SaaS providers do not support federated identification.

The hybrid set-ups that are increasingly the norm can create other challenges too, because they way they are built can impact on how easily they can be integrated post M&A. One company could chose to build its private cloud using open source APIs (from Eucalyptus Systems, for example) and virtualisation software (from VMware, for example), so that they are compatible with the public cloud services provided by Amazon EC2 and Verizon (and an internal call for a VM server or cloud storage, for example, won’t need to be changed if an application moves from the private to the public cloud); another organisation might take a different approach.

The advantages of using cloud can also be dependent on the organisations being merged or acquired, as Dassault Systèmes found in 2010 when it bought part of the product lifecycle management business of IBM. ‘We were able to move the funds overnight in 27 countries and move very fast and close the deal,’ recalls John Colleemallay, director of treasury and financing at Dassault Systèmes, which was helped by its standardisation on SaaS treasury software (from Kyriba) and SWIFT messaging for bank transactions, as this supported centralised cash pooling and a reduction in the number of bank relationships the group needs to sustain.

So, while cloud techniques and technologies can have a significant impact on the success of any post M&A project to integrate information and communications infrastructures, how extensive this is, will depend on the organisations involved in the M&A, their existing IT infrastructures, their planned post merger IT infrastructure, and how effectively they utilise the integration tools at their disposal – and how thoroughly they perform their pre-M&A due diligence. The following points remain significant in the success (or otherwise) of the post-merger IT implementation whatever mixture of on premise systems and public, private and hybrid cloud resources comprises the infrastructures involved:

  • The questions that get asked about IT during pre-M&A due diligence are at least as important as the answers.
  • IT is an organisational bellwether. If it isn’t providing the information the organisation needs pre-M&A, then post-M&A integration will be the least of your problems.
  • The quality of information and how well it is used in managing and running the companies are critical factors in the functioning of the post-M&A entity.
  • Larger companies typically force their IT systems onto smaller acquisitions but cloud means that the status quo can be trumped by agility and adaptability.
  • M&As are an opportunity to gain competitive advantage by creating a more flexible, efficient and cost-effective IT operation and service model.

Lesley Meall is a freelance journalist and editor. She has been writing about accountancy, business and technology for more years than she cares to remember, and before this, at some point in the dim and distant past, she used to be a software engineer.