A Hidden Problem with Mergers & Acquisitions: Tool Redundancy
By Sean McDermott, President & CEO of RedMonocle
By definition, mergers and acquisitions (M&A) activity yields duplication and redundancy. For global enterprises, spend on IT tools for software management and monitoring can reach $50 million annually as a result of M&A, with tools overlap as high as 80%. With the right tools plan, a large company can save nearly $20 million annually while also improving efficiency and creating a more agile IT operation.
When conducting M&A due diligence and integration, CIOs should strategize how to handle the resulting tool sprawl and the associated waste to consolidate, optimize, retire, or go all in on the right set of tools for the new organization.
Why Focus on Tool Redundancy?
After completing an M&A, some might think there is enough differentiating software to maintain separate systems. While companies might have minor differences in the software, infrastructure operations—servers, applications, networks, and computers/devices—are basically the same across any industry.
While one benefit from mergers is synergy and cost reduction, systems integration of merged companies is done poorly, sometimes taking years to complete and realize the benefits. If a company has experienced multiple mergers or acquisitions, multiple ticketing systems, monitoring systems, networks, etc. probably exist.
CIOs have difficulty tracking, monitoring, and identifying their company’s infrastructure elements, let alone any acquired company. Without a designated tracking system, CIOs have little insight of the challenges, gaps, and duplications in their own company, let alone the newly-acquired company, potentially costing millions of dollars.
To benefit from a merged, integrated system, CIOs need to quickly integrate systems and personnel by first understanding:
- How big is the problem?
- How to identify the overlaps and duplications?
- What will the consolidation strategy be?
- How will the companies merge the data?
Many CIOs are guessing at the answers to these critical questions with anecdotal information. If a CIO can’t grasp the potential for consolidation and synergy, then they can’t grasp the costs.
Tools Consolidation in Action
A leading global investment bank, spending $30 million in tools, had plans to merge with a company of similar revenue and tools spend. As a result, tool spend could be upwards of $80 million in overlapping tools over the next three years. This is real money!
Using RedMonocle™ prior to the merger, the bank captured the company’s current tools portfolio and requirements. As RedMonocle is specifically designed for IT tools rationalization, it took about 10 days to capture a tools inventory and define requirements with the stakeholders. The same capture was applied to the acquired company, then compared. RedMonocle not only identified a 76% overlap in tools, but also determined that 14% of the requirements of stakeholders were not being met by existing tools.
Not waiting for the M&A transaction to complete, the CIO brought in RedMonocle as part of the planning process to wade through the challenge. As a result, the bank saw what the merger would actually do to the company’s infrastructure and people. With the CIO’s foresight, the company is projected to save $21 million annually.
A Proactive Approach to M&A Tool Planning
Tool planning should be part of the process for CIOs to see how an M&A transaction will affect the infrastructure and people of the merged company. RedMonocle can offer real-time monitoring, empirical data, and modeling tools to show cost savings, reduction in overlap, and where processes can be streamlined.
To learn more about how to proactively optimize your IT tool portfolio in preparation for a merger or acquisition, visit redmonocle.com.