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Trends in Financial Services

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M and A acceleration and the CIO's role

06 May 2009  |  5221 views  |  1

Although many may claim to have done so, nobody could have predicted the severity of the current economic situation. The domino-effect continues and it is becoming more and more difficult to determine whether a business partner, competitor or service provider will be in existence next month or even next week. 

As a result many mergers and acquisitions have become survival tactics rather than long-term investment strategies. According to research firm Dealogic, this year $271.9 billion (£155 billion) worth of mergers had already been logged at the start of March. This is almost three times the value recorded a year before. 

Mergers and acquisitions once involved many months of due diligence and careful planning for the two (or more) parties to determine how to ensure collaborative fit, profitable growth and rationalised assets and overheads. However in today’s rapidly re-shaping financial markets, firms are being thrust together, sometimes by external forces and sometimes with poor intuition, and have minimal time to adapt under high pressure. Too often, we read, they have had no audited and researched view of even the baseline from which their adaptation was to begin. 

In any post-merger or post-acquisition scenario, whatever the timescale allowed, a key requirement is to maintain ‘business-as-usual’ - to make sure that the merged organisations do not lose customers through poor service and market perception that future reliability is at risk. Where, as we have too frequently seen in recent months, shareholder and investor confidence has been severely shaken by market forces originating for reasons other than the merger itself, this business retention challenge, although greater, is even more of a critical priority.

M&A announcements and speculations tend to throw the immediate media spotlight onto possible job losses. Certainly this consequence, which is often tragic for the individuals implicated, will always be a factor for boardroom consideration, but in a fast-build organisational reconstruction, it is an unrealistic priority. At the earliest stages it is impossible for these organisations to know what their real capacity requirements will be in terms of human resources. 

During the merger upheaval, an asset that is rarely commented on in the media is the technology that financial services companies rely on to function. The dramatic acceleration of M&A activity has made CIOs think differently about the services and systems they have in place when M&A scenarios arise. 

The initial (correct) decisions are to cancel any discretionary and/or cosmetic systems developments and to defer (as far as possible) any non-mandatory standards and other compliance programmes. 

Thereafter, to maintain ‘business-as-usual’ in the consolidated enterprise, and deliver post-merger revenue benefits, ripping and replacing systems is not a realistic option, as both costs and operational risks would be prohibitive. M&A events give CIOs an opportunity to take a fresh look at optimising their existing technology. Considerations include:

Consolidating the financial and operational management of the merged enterprises into one preferred suite of central systems without invasively impacting the separate source systems

  • Bringing out-sourced services back in-house
  • Offering strong in-house processing solutions as outsourced services to competitor companies
  • Maintaining the launch of new portfolio products that had reliable pre-merger business cases
  • Re-evaluating the cost-benefits of extended straight-through-processing

To address these considerations, the CIO’s reality-check breaks down into three steps:

 I have technology infrastructure legacies from (at least) two companies.

  1. What I have is not perfect, but it’s what I have, and I will get no new investment in the short term.
  2. By using current business process integration technology how can I:...

·         Provide my executive colleagues consolidated and effective control over their expanded domain?

·         Extend the life of what I have?

·         Expand the business usage of what I have?

·         Reduce my operating costs?

·         Help to maintain and grow revenue?

Well-judged and well-executed answers to these questions will make substantial contributions towards successful M&A outcomes. 

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Comments: (1)

Tim Brew
Tim Brew - YourCMO - London | 08 May, 2009, 11:23

I believe that one option so readily dismissed in your article deserves further consideration by any CIO, namely the implementation of a next generation platform.  Given the size of some of the mergers that have been 'forced through' recently, the legacy applications simply will not have the capacity to operate the merged volumes on a single instance – thereby forcing the continuation of business as usual to permanently waste resource and money. Surely the most pragmatic answer would be to implement a world class next generation platform and then with a phased and controlled approach, migrate the legacy applications from both sides onto the single new environment.  Many of the mega mergers (which make up the major part of your figures) have themselves been part of previous mergers, which in many instances have continued to operate without proper IT integration, the result being that there are many more than two systems to consolidate.

 

Why should this be the first option for any CIO?

 

Take the mandatory enhancements that must continue to be applied for business continuity, for instance. If left 'as is' these must be applied to all the legacy applications. Clearly, a false economy draining already stretched IT departments, which means  there will never be resource available to enhance and ultimately improve the service available to the bank. The only way that you can really drive the cost out of these mergers is for the CIO to be brave. Set up a green-field site and then migrate all the legacy system by system across to the new world . All CIOs of mega mergers know that the first item to be targeted is IT staffing levels. If they don't act swiftly and implement the right solution, they too will end up managing a legacy IT giant, too big to change and too old to deliver world class answers to their businesses.

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