The Risk Inherent in Mergers and Acquisitions
More than fifty percent of mergers and acquisitions fail to reach value. Executives of merging companies promise shareholders handsome returns through increased market reach, economies of scale, consolidation of operations, and ever-elusive “synergies.”
According to Boston Consulting Group1, however, between 1992 and 2006, 58 percent of the deals actually destroyed value for the acquirer’s shareholders, producing a net loss of 1.2 percent for all transactions.
Most deals are expected to become accretive within a twelve to eighteen month timeframe. To meet such an aggressive time scale requires comprehensive risk management and risk mitigation. The CIO and their IT legions are critical in making the merger work – merging the multiple systems that each party brings to the table. Often ignored, however, is the data. Terabytes of data. Hundreds and thousands of data sources. Data in arcane, difficult-to-access formats. Data in spreadsheets. Dirty data. Data that can’t be found. Data that no one really understands or can explain.
For example, to consolidate business applications, data has to be migrated from one system to another. But this isn’t always easy – in fact, many companies fail to make this first hurdle. Bloor Research presents some daunting figures: more than 80% of data migration projects fail or overrun, 64% are delivered late, and 37% run over budget.2 When the data migration project fails, the initiative to consolidate systems or integrate business processes fails. And the promised business results of increased operational efficiency or greater revenue fail to materialize in time to meet executive and shareholder expectations. In the worst case scenario, the stock price plummets as Wall Street writes off another failed deal.
What leads to these failures? Teams make assumptions about data that turn out to be false.
| All needed data is available |
Needed data is missing |
| The data is valid |
Data quality is poor |
| The data will be in specific formats |
The data is in unknown or multiple formats |
| System interfaces are documented |
Undocumented system interfaces |
| The necessary data is in a few systems |
Key data is scattered across many source systems, and is inconsistent |
How can companies reduce the risk that their merger or acquisition will be derailed by data issues? It is critical to plan for the data merger:
- Focus on data issues from the beginning, even during pre-acquisition evaluation.
- Ensure that data integration and data quality tools and skills are in place to address the myriad data issues that arise during M&A.
Informatica can help with both steps.
1“The Brave New World of M&A”, Boston Consulting Group, July 2007
2“Data Migration in the Global 2000,” Bloor Research, September 2007