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After the M&A is over

Combining the IT infrastructures of two different organisations into one in the aftermath of an M&A deal is the biggest challenge of all. By Vinita Gupta

Mergers and acquisitions (M&A) have become commonplace in today’s global marketplace, and the last decade has seen no shortage of them—both in India and abroad. From 2000 to 2006, many major companies—both IT and non IT—have merged with or acquired other small or large organisations. For instance, Microsoft has acquired around 37 companies; Google and Yahoo around 25 and 27 respectively. Closer home there have been mega deals like Tata Steel’s acquisition of Corus or Hindalco’s of Novelis.

Enterprises whose growth strategies include M&A are faced with unique challenges associated with the integration of distinct business entities. The change that comes with M&A can have disruptive effects on an organisation and hence managers should be aware of the changes that the M&A process can bring, and manage things so as to minimise the negative effects of these changes.

Technology matters

According to analysts, the difficulty accompanying IT integration during an M&A is one of the most common reasons for a deal going sour. Modern corporations rely on the smooth operation of their IT infrastructures to support their core business. All efforts aimed at integrating the people, processes, and technologies of two (or more) companies must, therefore be directed at minimising the impact that this activity has upon day-to-day operations. In addition, the combined IT organisation is expected to deliver improved performance that effectively supports the business requirements of the combined entity.

Centurion Bank (CB) has undertaken two mergers in recent years. Back in 2003 it merged with Bank of Muscat’s Indian operations and in 2005-06 with the Bank of Punjab (BOP). According to Sanjay Narkar, CTO, Centurion Bank of Punjab (CBOP), the two banks had different systems and the accommodation and migration of these different systems into one was a major challenge. The Bank of Muscat merger was only in Bangalore hence the magnitude of this deal was small as compared to the BOP one.

He adds, “To support the business roadmap, the latest and best systems should be in place and hence while merging we decided upon which solution would benefit the new bank. For instance CB had Misys as the core banking system and BOP had Infosys’ Finacle. BOP’s experience with Finacle and the solution’s track record with several leading banks in India and globally led to Finacle being selected as the core banking system for the merged entity.”

When it came to managing retail assets, BOP had two systems and CB had one so the challenge was to have one system and not three. Even some of the products and services offered by these two banks differed. BOP had an agricultural loan product while CB did not have one and hence the new bank undertook testing to define the product.

Although there seems to be the perception that mergers lead to more challenges than acquisitions, Sanjay Sinha, Head - Business Development and Investor Relations, KPIT Cummins Infosystems feels that the only difference between a merger and an acquisition is that during a merger the management of two companies becomes part of one board while in the case of an acquisition this does not usually take place. Barring this, all other challenges of integrating IT, people, HR etc. remain the same. Since 2002 KPIT merged with Cummins Infosystems and made four acquisitions buying SolvCentral.com Inc, Pivolis, CG-Smith Software and Panex Consulting.

According to Sinha overpaying the acquisition amount is also a major reason for its failure as the aim of the acquisition is to grow the company and create more profit than the amount paid. Therefore an organisation should create components of a payment structure wherein the promoters and management of the acquired company have a small stake in the new company.

Start with a plan

While going in for M&A, it is important to understand the extent to which the business of both companies fit with each other to create a win- win situation for both parties. For instance, Rolta recently acquired Orion Technologies. This is Rolta’s first acquisition and it plans to consummate the deal within two to three months. Rolta is a service company and Orion a product company; Rolta picked Orion as the latter’s products would complement its technology portfolio.

Hiranya Ashar, the Director - Finance and CFO of Rolta India says, “As a company we want to have organic, inorganic and strategic growth. Acquisition plays an important role in inorganic growth. The management decided to acquire a company and we appointed consultants to find companies that wanted to sell their stakes. The consultants even guided us in financial, legal and other such matters.”

After this acquisition the management of Orion was not changed and the company continued its operations under the same name from its headquarters in Canada.

Narkar feels that 40 percent of M&A deals fail are a result of proper integration planning not being done. This is why CBOP spent two and a half months on planning. It selected a few members from both banks to form an integration team and a hierarchy was formed within this team with a person in-charge of the entire effort. The steering committee, integration team and the in-charge discussed the process and action plan. Parallel to this team, other business and IT teams were formed that looked after integration across branches.

Simultaneously CBOP was working on about 10 to 12 parallel projects for merging the core banking, retail banking and ATM networks of the two banks. The bank has appointed KPMG to take care of program management. Regular feedback was collected from each team and presented to the steering committee.

Similarly, KPIT has a hundred days planning program wherein along with the teams it identifies roles and responsibilities. Sinha adds, “We will integrate the processes and technologies into one and to achieve these goals we will work as one team and not two companies.”

Communication is critical

Clear communication with employees and customers during an M&A is crucial for success. The employees of the company being acquired will definitely like to know that the e-mail, scheduling and access to the Intranet will work seamlessly during the transition.

Sinha adds, “Ours is a people-driven business and if people are not happy then it affects business. Different people have different motivations and goals and hence communication is important. From day one of the acquisition we had the infrastructure in place wherein the management was able to interact with employees and explain the acquisition process to them. We always took our customers’ views to ensure that they were happy with the M&A steps taken by us.”

It is important for the management to keep meeting and communicating with employees hence in the course of KPIT’s and CG Smith’s acquisitions, both the companies’ top managements had a meeting with the employees to explain how the acquisition would be beneficial for the company and them. They also addressed the employees queries about salary, work environment etc.

At CBOP the first thing that they did after the merger was to take care of connecting the networks of the two banks. Narkar adds, “Integrating communication was the first step. All the messages from the top management about the mergers used to reach employees of both banks across the country and this created confidence in the employees that management was communicating with them.”

Being a bank it was also critical that the customers of both banks should enjoy an uninterrupted experience. Not only did they have to be able to do all their banking activities as they had all along but at the same time they had to be in a position to access banking services from the other bank’s branches as well. A BOP customer had to be serviced by a CB branch and vice-versa. To this end, at each branch of the CB and BOP, one identified staff member of the other bank was present and all transactions and services were processed from the central cell which had access to the systems of both banks.

The ATM networks of the banks were also connected. Narkar says, “The customers can continue to use their old debit cards as after the merger only the account numbers were changed through a mapping system and all the customers were informed about it.”

Integrating HR systems during an M&A requires careful planning. At CBOP, new HR policies were crafted and workshops were conducted across India.

At times M&A also leads to employees being shifted from one office to other or even from one country to another. Ashar adds, “We are not moving people in bulk but as per the business requirements we could be moving a few employees. For instance, if some project is shifted to India from a Rolta office in another country then at least one person from that office who knows the project needs to be shifted. We will make sure that the employees are satisfied or else we will lose people.”

The company has plans to acquire some GIS or engineering companies outside India and has raised $80 to 90 million dollars for this year’s acquisitions.

M&A can be traumatic but as we have seen it does not have to be so. Careful planning and execution of said plans can make all the difference and a happy ending can be achieved in terms of an integrated IT system that serves employees of both companies equally well enabling them to seamlessly serve the customers of both entities.