By Madhan Raj J, Associate Vice President, Cobalt Cloud Solution Strategist, Infosys
Depending on which side they’re on, organisations see in merger deals an opportunity to fast-track growth or divest non-core assets. Sadly, in many cases, the dream turns to dust: several studies have shown the M&A failure rate is between 60 and 80 percent.
AI provides insights at every stage
Artificial intelligence is optimising the entire M&A lifecycle by providing data-driven insights at every stage to enable informed decisions. Companies considering a merger or acquisition can use AI to understand market trends, performance of past deals, and other events of relevance to decide the way forward. On the potential candidates, big data, analytics and AI algorithms help process vast corporate information from a variety of sources – financial statements, analyst briefings, media reports, and more– to identify acquisition targets meeting their requirements. AI augment the experts in due diligence performing complex financial modelling or reviewing extensive legal documents, conduct risk analysis with higher accuracy at a fraction of the time, compared to existing methods. It can even assess the cultural fit between the parties at a speed and accuracy that is beyond the reach of human beings. AI-enabled project management tools can even facilitate post-merger integration by identifying milestones, monitoring progress, and bringing about risks between the transacting entities, thus becoming the ideal enabler.
Cloud paves way for effective M&A deal
Successful technology integration is crucial for realising deal value. Technology estates of merging entities are often disparate, and hence they use a Transition Service Agreement (TSA) where the seller provides support to help the acquirer adapt to new systems. TSAs usually include penalties for delays, motivating timely exits. Challenges arise with legacy, on-premise ERP systems, which are difficult to integrate. Value realisation typically declines 18 to 24 months post-deal.
For the acquirer, cloud can increase the odds by removing many of the barriers to integration. Its vast catalogue of ready-to-consume services, agility, and scalability reduce time and cost of migration and integration. The cloud’s unique characteristics, such as resiliency and security, can help improve overall posture of systems and applications across the merging entities; The global presence of hyperscalers with their extensive region coverage and strong network backbone, eases integration whether the acquired entity is globally distributed or not. With most of the services of public cloud being fully managed, it reduces the acquirer’s burden to build and manage the capabilities needed for the target state.
For the legacy enterprise system, at times replacing with a cloud-based solution, organisations can become operational within six to fourteen months, depending on size, which is much faster than the time taken in a traditional on-premise scenario. The benefits continue to flow post-merger, in the form of regular upgrades, ease of modification, and evolving system capabilities.
For the seller, preparing the divesting entity’s IT landscape with cloud capabilities makes it attractive for acquirer and shortens the TSA period.
Be wary of IT security of the merged entities
Integration aside, cybersecurity is a big concern in M&A deals, 40 percent of which are reported to have encountered cybersecurity risks, in many cases long after the deal is done. Differences in the merging companies’ technology architectures, tools and configurations, make it extremely challenging to ascertain M&A security posture accurately, completely, and on time, even if the organisations are already on the same cloud.
Utilise the right tools, preferably enabled with AI, to perform security evaluations of IT landscapes adopting a non-invasive risk assessment approach during the due diligence process or at the beginning of integration. The tools give a full view into potential security concerns and risks in the entire infrastructure and suggest mitigation actions. Create guardrails, ensuring cloud provisioning happens in accordance with the laid-down policies and deploy automation for real-time risk identification and remediation. Create a unified view of security of all the technology systems and resources, enabling better visibility, informed decisions and prompt actions.
By facilitating integration, and every activity in the M&A lifecycle, cloud and AI can make a real difference to deal outcomes. Apart from target selection, valuation, and due diligence, managing the cybersecurity risk of the combined technology landscape is critical to success.
