Merger & Acquisition Due DiligenceIT Alignment & Planning Framework

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Table of Contents

Introduction 3

Merger Key Considerations 4

Merger Strategy and Measurement Framework 5

Critical Success Factors Checklist 6

Merger Planning Process Overview 7

3 Key Steps for Success 8

Sample Merger Program Plan 10

Technology Challenges – Amplified in a merger situation 11

Challenges that must be addressed in a merger 12

Detailed Planning 13

Prioritization & Speed 14

Cultural Merger 15

Retaining Talent 16

The Litcom Approach 17

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Introduction

Mergers & Acquisitions (M&As) are among the most intense and challenging activities in business. Managing the IT integration risk associated with a merger has become a major component in determining the ultimate success or failure of M&As. Expectations regarding cost savings and economies of scale often focus on IT. In fact, IT plays a critical role in determining how effectively the merged organization is able to integrate processes and people, as well as deliver products and services to internal and external consumers.

Studies have indicated that while numerous M&As have fizzled for various reasons, a major reason is that the CEO did not bring the IT department on board early enough, mainly due to a lack of understanding of the important role that IT plays in M&A deals. Successful M&A deals depend on strong IT backed by knowledgeable IT staff who comprehend the subtleties of these sorts of arrangements, can perform appropriate technology due diligence and can efficiently arrange a post-merger integration project. With sufficient advanced notification and proper involvement in the M&A process, IT can deliver enormous value and help to ensure a successful transition.

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Merger Key Considerations

What roles should key constituents take in the merger?

What will merger success look like?

What is the merger timetable?

• The Executive• The Steering Group• The Program Office (e.g. passive versus proactive)• BU Managers } who is accountable • Project Managers } for prize delivery?

• In three months?• In six months?• In 1 year?

• Milestones (Day 1, First 90 Days)• What will be communicated, how and when?

What principles will we apply to the merger and how will we

communicate these?

• Minimum organizational disruption• Appointments by merit; not organizational history• What is out-of-scope initially?• Degrees of freedom for operational managers?

What are the “must do’s” for the short/medium term?

• Key challenges focused on options of a more fundamental nature (taken off-line)

What is the purpose of the merger?

• How does it relate to our strategy?• What level of merger/independence is intended/appropriate?• To what extent is re-engineering appropriate as part of the merger

process?

Below are a few key considerations that must be contemplated prior to any M&A transaction.

Merger Strategy and Measurement Framework

People Commitment

Strategy/Goals

Balanced Scorecard Measures

Growth &Innovation

CustomerSatisfaction

Process Quality

Financial

Critical Success Factors (CSFs)

Clarity on Measures for Success

Resolve to take tough decisions

• Merger or acquisition?

• Operating Model (balance growth/cost reduction priorities)

• Customer rationalization and prioritization

• Head Office consolidation

• Accountability for prize delivery

• Regulatory requirements

• Branding and house style

Clarity on Merger Strategy

Need for

autonomy

Need for Merger HighLow

Low

PRESERVATION(Boundary

Maintenance)

High

ABSORPTION(Boundary Dissolution)

SYMBIOSIS(Paced Capabilities

Transfer)

• Product/service portfolio alignment

• Management of risk

• “Keepers and leavers”

• Reward and remuneration

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Critical Success Factors Checklist

A key basket of non-financial performance

measures drives 35% of the externally perceived

value of the merged entity.

“Measures That Matter”

Identifying and initiating the 6 to10 high impact merger projects early is

critical.

Half a dozen projects deliver most of the value

Focusing solely on operational merger will only deliver short-term

tactical value

Long-term value comes only from strategic merger

Mergers often fail to deliver full value because the new entity does not grasp the

value creation opportunities as well as focusing on

value capture.

Optimizing business performance

Merger success is not about having the perfect

strategy; it is about delivering on your

promises to all your stakeholders.

Delivering on your promises

The key prerequisite of success is management

having the resolve to make the hard choices at

the right time.

Making the tough decisions

A merger can be an energizing catalyst to

radically improve performance and

motivation across the new entity.

“Seize the day”

Clear

Vision & Targets

Strong Leadership

Sufficient Resources

Prioritization

and Speed

Customer

Focus

Detailed Planning

program ManagementRisk Management

Performance Tracking

Cultural

MergerCommunication

Change Management

Retain Key Talent

Business

Accountability

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Merger Planning Process Overview

Merger Strategy & Shared Vision

Program Planning & Start-up

Design & Implementation

Project Team Planning

Process Optimization

Day 1 Day 90

Organization Optimization

Systems Optimization

Organizational Realignment

Asset Rationalization

Product & Customer Realignment

Core & Support Process Realignment

Systems Merger

Strategic Value Analysis & Target

Development

Evaluation Analysis

Target Strategy

Structuring & Negotiation

Due Diligence

Transaction Stage

Legal, Tax, Regulatory Support

Target Search & Selection

Strategic Vision and External Option

Identification

Day 1 Operations

Close

Strategy/Business Planning

Transition Planning

Strategy

Transaction

Transition

Strategy Design & Implementation

Optimization

Program Management

Communication and Change Management

Merger Program Management

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3 Key Steps for Success

One: Collect requirements and assess any gaps in IT proficiencies

The primary consideration in merger integration normally happens throughout the first (or due diligence) stage, when IT must foster an understanding of all technological requirements created by the merger. This begins with recognizing requirements inside the IT department itself. CIOs need to acquire a good understanding of the IT assets on both sides of the transaction to determine how the two organizations can best fit together, where any potential cooperation might exist, and where integration risks may occur. This process necessitates a survey of IT infrastructure and a structure for ensuring continuity of essential resources. Areas of examination include:

• Hardware, software, and network systems;• Enterprise and departmental application and data platforms (e.g., ERP, CRM systems, etc.); and• Corporate programs for specific lines of business, products, services, and vendor platforms.

Two: Prioritize Initiatives

Given that IT resource availability may be decreased throughout the merger, technology leaders must be systematic in assessing how resources are best positioned to help current operations while supporting the merger or acquisition activities. When IT is included in the process of integration early on, coordinated effort with the business teams can occur to guarantee projects are appropriately prioritized.

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3 Key Steps for Success(cont.)

Three: Create an integrated Implementation Road Map

Once CIOs have identified priorities for both the IT department and the new corporate structure, they can convert this list of initiatives into a road map, including sub-projects, detailed timelines, and contingency plans. The roadmap will likely uncover redundancies with the prioritized activities in addition to key gaps in the IT proficiencies required to complete them. A well-constructed roadmap should incorporate a plan to address those shortfalls. Furthermore, it should emphasize imperative conditions and success factors for each of the key steps discussed.

Because IT is so critical to an organization’s success, fruitful merger and acquisition integration facilitates close alignment of IT and the business side of an organization before, throughout, and after the transaction. This means that IT must correspond early and regularly with the business to ensure a balanced perspective of the new organization and a careful understanding of its capabilities.

Sample Merger Program Plan

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Supplier,Product & CustomerRealignment

Target Day 1

Identify top performers/ develop selection processes

Consolidate Organisation

Conduct Launch Mtg

Assess accounting/finance principles

Develop & Baseline program master plan

Design day 1 reqts

Risk and Issue Management

Progress Tracking & Status Reporting

Master Plan Management

Value Tracking

Asset rationalisation

OrgnAlign-ment

Core and supportprocess Merger

Establish Bus A current business baseline

Establish Program Office & Infrastructure

Communication & Change Management

Merger Team Support

Identify Information

sharing constraints

Develop prioritised

schedule for Day 1

Produce business

orgnprinciples

Assess business critical issues/risks

Rationalise Assets

Ph

ased

Lau

nch

of

Po

st D

ay 1

Te

ams

an

d D

ay 1

cu

tove

r

Assess Consolidation Requirements

DAY 90Steering CommMtg

Steering CommMtg

Set up clean

teams and process Establish Bus B current business baseline

Implement control/co-ordination process and reporting structures

Confirm synergy model and measurement framework

Business sign-off

Bu

sin

ess

Re

qts

De

fnFi

nan

ceH

RO

ps

Co

rp S

erv

ices

Co

mm

s

Develop finance contacts list

Identify key resources and retention strategy

Co

nd

uct

act

ivit

y w

ork

stre

am k

ick-

off

se

ssio

ns

and

de

velo

p a

ctiv

ity

char

ters

Initiate and maintain weekly pre-day 1 communications process

Develop commnstrategy and

principles

Define Identity andbranding brief

Develop high level processes

Document current legal structure

Assess and secureresource reqts

Develop internal/external commn processes/mechanism

Assess approach on trng,benefits,perf mgmt etc

Consider regulatory reqts and set up forum

Establish IT team interfaces

Develop policy for Treasury Mgmt

Develop reporting reqts

Confirm synergy analysis

Co-ordinate agenda for FY

reporting

Develop joint statement on

pensions

Develop interim IT solutions

Develop regulatory reqts

Determine security reqts

Define Intntl Reqts

Co-ordinate Day 1 preparation

Wkshp sponsor discussions

Confirmday 1 scope

Top executive pre-positioning

SystemsMerger

Assess current orgn

structures and design

new business

Co

nd

uct

de

sign

wo

rksh

op

Conduct employee surveys

Identify redundant or obsolete roles

Assess knowledge,skills, and competencies reqd

Determine target systems

envt and selection criteria

Develop systems consolidation

plan

Create development

systems infrastructure

Develop conversion

applicns and interface

reqts

Conduct detailed

current state assessment

Assess change readiness / risks

Determine people/systems impact

Develop detailed future state

Develop implementation

plan

Collect and document

current asset data Conduct asset rationalisation

analysis

Determine people/process impact

Develop asset rationalisn/disposal strategy

Developimpln plan

Assess channels,products

and customer needs trade-offs

Develop pricing strategy

Analyse and rationalise supplier base

Define consolidated channel strategy and product lines Define

mrktg & sales

support reqts

Pro

gram

Mgm

t

To ensure success during an M&A transaction, a plan, such as this one, is a necessity. While every step may not be required, they must all be considered in the planning process.

Technology Challenges – Amplified in a merger situation

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TechnologyLeadershipChallenges

New Technologies

Competitive PressuresChanging Business Priorities

Cost Reduction

Skill Shortages

• Languages, mobility

• EAI, B2B, web services

• Portals, Digital Content etc.

• Internal groups demanding changes

• Competing organizations

• Faster to market

• New markets

• Emerging eBusiness strategies

• Responsive to change (nimble)

• Budget cuts, RIFs

• IT governance challenges

• Consolidations

• Talent retention

• Better technology

• Vital production systems

• Hiring / retraining

New Methods & Standards

Customer Satisfaction

• Changing business processes

• Iterative vs. Waterfall

• Quality Management (ISO, CMM)

• Software Productivity

• More knowledgeable customer

• Demands for more information

• Faster requirements realization

• “Integrate it”

Systems Integration

• Heterogeneous systems

• Heterogeneous data sources

• Heterogeneous technologies

• Data consolidation issues

• Security consolidation

Post Merger

• Alignment & Synergies

• Architecture & Application Rationalization

• IT Organization & Operating model

There is no shortage of the technology challenges in an M&A transaction which is why the IT leader must anticipate and act in a timely manner.

Challenges that must be addressed in a merger

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How to ensure that synergy & value targets drive merger activities;

How to deploy scarce resources to deliver maximum benefit;

How to demonstrate merger progress & benefits quickly to retain support; and

How to achieve ongoing senior management support for the merger plan.

How to quickly create a stable IT platform to support day to day operations;

How to deliver benefits to the business quickly enough to build and maintain credibility; and

How to continuously re-prioritize based on delivering merger value.

How to identify the staff critical to the success of the merger; and

How to win the hearts and minds of critical staff to ensure that they stay.

How to manage and resolve cultural differences;

How to establish the desired post-merger culture; and

How to manage resistance to the new ways of working and organization.

Detailed Planning

Prioritization & Speed

Cultural Merger

Retaining Talent

To address the various challenges, sets of questions must be considered and action plans developed to ensure the ‘right’ answers are provided for each of these four categories. Success factors and potential solutions are outlined on the following pages.

Detailed Planning

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How to ensure that synergy & value targets drive merger activities;

How to deploy scarce resources to deliver maximum benefit;

How to demonstrate merger progress & benefits quickly to retain support; and

How to achieve ongoing senior management support for the merger plan.

Challenges

Success factors

Plan as much as possible before the deal is closed;

Develop distinct plans for the various phases of the Merger and develop a route map;

Co-ordinate and formalize the timeline for organization, people selection and facilities migration;

Ensure that there are sufficient resources to deliver the plan

Assign scarce resources to priority initiatives

Exercise strong leadership to ensure that the plan is managed and delivered

;

; and

.

Solutions

Identify opportunities for cost reduction & revenue growth;

Take time to design the most efficient Merger process possible;

Define specific goals for the Merger of IT environments (e.g. reduced costs, increased network. coverage etc.);

Map IT infrastructure commonalities and deficiencies; and

Build a tool to track benefits.

Prioritization & Speed

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How to quickly create a stable IT platform to support day to day operations;

How to deliver benefits to the business quickly enough to build and maintain credibility; and

How to continuously re-prioritize based on delivering merger value.

Success factors

Prioritize design & implementation efforts to achieve majority of intended value early;

Resist urge to standardize approaches and processes unnecessarily;

Continuously prioritize based on source of integrated value;

Understand implications of prioritization decisions; and

Balance speed with the requirement to provide a stable platform.

Solutions

Develop critical path for the IT integration program;

Consider all aspects of the IT Merger (organization / locations, applications, networks, knowledge bases, etc.);

Define decision gates and rolling planning where appropriate; and

Design & prioritize IT Merger initiatives in accordance with merger objectives.

Challenges

Cultural Merger

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How to manage and resolve cultural differences;

How to establish the desired post-merger culture; and

How to manage resistance to the new ways of working and organization.

Solutions

Define the desired to-be culture and implement initiatives to create this culture;

Communicate the new cultural values actively and consistently to all constituents through several two-way channels;

Pre-select a team of influential executives from all organizations to lead merger initiatives and demonstrate executive buy-in;

Make the critical decisions and communicate them openly to avoid low morale and a gradual loss of faith in the leadership team;

Visibly co-ordinate mobilisation effort between all organisations, working at all levels, to avoid the ‘them and us’ syndrome;

Involve people in setting the new direction - especially cynics; and

Actively communicate the success and value of Merger initiatives to all staff members.

Challenges

Identify and proactively deal with cultural issues;

Kill any “we-they” attitude;

Reinforce the “jointness” of the deal by including managers and employees from both entities in all events & activities; and

Balance team design to reflect natural legacy strengths and weaknesses.

Success factors

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Retaining Talent

How to identify the staff critical to the success of the Merger; and

How to win the hearts and minds of critical staff to ensure that they stay.

Success factors

Identify and communicate with key individuals (or “keepers”) early - give them significant Merger roles;

Avoid under committing to key employees and over-committing to non-key employees;

Identify rising talent in both organizations;

Identify critical IT infrastructure and applications “keepers” from both organizations;

Identify Merger & operational IT resource requirements; and

Design and implement programs to retain key employees.

Solutions

Provide Merger training and cross-training for all staff;

Manage emotional & political implications of the merger - avoiding low morale & subversive employee base;

Generate enthusiasm & commitment at all levels of the organization;

Develop a communications plan addressing internal and external constituencies which anticipates questions & concerns; and

Involve “keepers” in Merger initiatives, publicizing the success of the initiatives and the value to the organization.

Challenges

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Litcom Approach

How does Litcom’s IT Due Diligence give you an advantage?

Litcom has developed a comprehensive IT Due Diligence Program leveraging our detailed IT Assessment methodology. As part of our IT Due Diligence process, we address our client’s requirements to understand an acquisition target’s IT environment. Litcom will review existing IT strategies, planned initiatives and commitments, a full breakdown of all direct and indirect IT costs, the current IT organization structure and resource skills, the technology infrastructure platform and environments, the application portfolio and any exposure to vendor / third party obligations. The benefits of our business-oriented IT Due Diligence Assessment approach include:

Litcom provides Merger & Acquisition IT Advisory services that enable our clients to understand the full IT risk profile of M&A transactions and determine the most effective way to integrate new organizations. We deliver IT Due Diligence services as part of an overall deal analysis and IT Post Merger Integration services upon completion of transactions. For more information, contact us at: info@litcom.ca

• Thorough understanding of technology-dependent business objectives.• An inventory of all IT priorities, organization and capabilities, processes, and costs including all existing and

planned contractual obligations. • An IT Acquisition Risk profile including mitigation strategies and associated high level costs for the

recommended IT initiatives and priorities.