The Definitive Guide to

Post-Merger Integration

Get to know everything about what Post-Merger Integration (PMI) means, 4 Steps to PMI Success and possible challenges of PMI.

Introduction

With technology being a foundation of modern organizations, and mergers and acquisitions expected to grow in the years ahead, the impact enterprise architecture plays in ensuring post-merger integration activities run smoothly has become readily apparent to business leadership. As a discipline, enterprise architecture (EA) is equally dedicated to the worlds of IT and business. EA’s goals are to offer a holistic overview of an enterprise, one with every business capability mapped alongside its underpinning technologies, to lead rather than merely guide strategic transformations.

In M&A, enterprise architects are ideally positioned to collaborate and assess, rationalize, and blend technology landscapes in a best-fit manner for the future of the combined enterprise. The EA team can help in the quick and secure integration of IT landscapes by focusing on transparently recording the technologies in both companies. This provides a basis for decision-making and generates faster time-to-value from post-merger integration efforts.

 

What is Post-Merger Integration (PMI)?

Post-merger integration is the process of unifying two entities and their assets, people, tasks, and resources in a manner that creates the most value for the future of the enterprise by realizing efficiencies and synergies.

From an IT perspective, PMI is a complex process requiring the leadership of enterprise architects to ensure a smooth process. According to the 2021 LeanIX M&A Report, nearly 90% of EAs are involved in post-merger integration, with the following use cases named as most prevalent.

 

Learn how EAs play a significant role in M&A

 

Ideally, enterprise architects will be included in the due diligence phase of M&A, but all too often they are left to gather the pieces and create a harmonized IT landscape in the wake of a deal. As the intermediary between business and IT leadership, EAs are able to define key objectives and build the PMI plan based on the corporate strategy.

 

4 Steps to PMI Success

Like any successful team, EAs need to be supported by technology that will maximize their value to the organization. Using a leading SaaS-based solution, like the LeanIX Enterprise Architecture Management Platform, these teams can easily overcome the technical challenges associated with mergers and acquisitions and hasten the transition from current to future-state architectures.   

Follow these 4 steps to ensure your M&A integration is a success with LeanIX. Of note, the reports and views below are built to be utilized throughout the entire EA practice but are highlighted here in relation to PMI activities.

Step 1. Develop a joint business capability map based on the corporate strategy

A core principle of enterprise architecture is understanding the baseline capabilities of a business. In other words, what an organization needs in order to perform its core functions. Business capability models must be built for each organization, and then combined to derive a joint business capability map. This is the first and most critical step of any successful PMI as it will establish a common language for teams to work from (see Figure 1).

 

Figure 1. Business Capability Map within LeanIX

 

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Source: LeanIX GmbH

 

Once a joint business capability map is built, the organizations can assess where there are redundancies and gaps. The corporate strategy and goals of the merger or acquisition must serve as a guide for the analysis of, and action plans surrounding, current and future business capabilities. From there, teams can begin diving into the underlying technologies to make decisions regarding key objectives (see Figure 2).

 

Figure 2: LeanIX Objective Landscape by Business Capability

 

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Source: LeanIX GmbH

 

LeanIX has created a template to help businesses get started in creating their own capability maps. Click here to get started.

 

Step 2. Create full transparency of the new application landscape

Applications are the backbone of business capabilities. In this step, enterprise architects must create a 360-degree view of all applications to complete the picture of the current-state architecture.

After the information is centralized, EAs should analyze each application by their usage and cost metrics to paint an even clearer picture. Business stakeholders should be brought into the fold via application evaluation surveys that evaluate the technical and functional fit of software running in the ecosystem (see Figure 3).

 

Figure 3. LeanIX Application Evaluation Survey

 

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Source: LeanIX GmbH

 

Business capabilities should also be evaluated for their current and future maturity level. Teams can then further dissect the application landscape based on their business criticality, their integrations, and dependencies (see Figure 4).

 

Figure 4. LeanIX Application Matrix by Business Criticality

 

EN-business-criticality

Source: LeanIX GmbH

 

Step 3. Define the best way forward for each application

The time has come to determine how to merge the application landscape and create a target architecture. Teams must align to decide on the best course of action that most closely fits the corporate strategy — e.g., taking a “best of both worlds” vs. “align on major platforms” vs “winner takes all” approach.

It’s at this point that a decision must be made with regard to the fate of existing applications. Application rationalization should be completed in stages, with a focused scope on what will yield the best results, for the most vital capabilities.

A good technique to drive this effort is Gartner’s TIME model, where stakeholders determine – based on defined criteria – if applications should be tolerated (T), invested in (I), migrated (M), or eliminated (E). LeanIX tags allow EAs to label applications by their TIME-model designation and visualize that across existing reports (see Figure 5). 

 

Figure 5. LeanIX Application Landscape with TIME Model View

 

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Source: LeanIX GmbH

 

If executed properly, in measured stages, application rationalization can help organizations realize millions of dollars in savings per annum. These savings not only help to offset the capital investment of a merger or acquisition, but they also position the newly formed enterprise for innovation and success moving forward.

 

Step 4. Develop application roadmap and track implementation

Rationalization activities are underway and EAs should begin tracking the burndown of the application portfolio (see Figure 6). They are now responsible for executing the post-merger integration.

 

Figure 6. Application Burndown Chart

 

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Source: LeanIX GmbH

 

Any PMI will impact business stakeholders, so it’s critical to communicate project timelines and the impacts that will be seen. It’s also essential to track the status of projects, measure their stages of completion, and inform leadership of savings that have been realized. This can be accomplished with the LeanIX Business Transformation Management (BTM) module, an add-on to the Enterprise Architecture Management Platform (see Figure 7).

 

Figure 7. LeanIX Transformation Roadmap

 

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Source: LeanIX GmbH

 

With LeanIX BTM, users are able to test different plans and scenarios to aid in identifying the best path forward for post-merger integration. They can also detect dependencies between phase-in and phase-out activities across project timelines. This can be accomplished by looking at the IT landscape at any point in time, past, present, or future, and observing changes.

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Possible Challenges of Post-Merger Integration

All mergers and acquisitions have roadblocks to overcome ranging from technical integration, to processes, people, and culture. In order for a deal to succeed, companies must plan for and address these challenges, quickly. Otherwise, the opportunity to capitalize on synergies and realize desired outcomes could be lost.

Technical challenges

When companies merge, become acquired, or divest, it’s apparent that technology is intertwined throughout the entire transformation process. This makes the IT challenges for a successful post-merger integration both wide ranging and critical to realizing value as quickly as possible.

Perhaps the most significant challenge of blending two organizations is the harmonization of disparate technology landscapes. IT integration and legal entity alignment are ranked by executives as the number 1 hurdles to manage in an M&A deal.

The complexity of modern enterprise technology landscapes can lead to further IT challenges, including:

  • A lack of visibility into technical assets, their dependencies, and relation to business capabilities
  • Compliance with cybersecurity standards — especially during international deals with multiple regulatory bodies
  • Inadequate resources from both a talent and tooling perspective

Read more about IT challenges in M&A.

Business challenges

Knowing what technical challenges to expect means nothing without having an engaged workforce to see them through. Mergers and acquisitions can come as a surprise to even top employees, making them fearful about their future with the newly formed organization. Leadership must be proactive in their communication to retain talent and have a successful post-merger integration.

Lack of strategic direction

In any PMI activity, there needs to be clarity of strategic direction. Both organizations need to remain fully operational while determining the best solutions to support the new entity’s business capabilities. Without any clear direction, however, this can pose challenges ranging from misinformation to workforce disengagement.

Need for change management

While this challenge is tangential to the technical issues found in any PMI, it’s highly relevant. Failing to communicate the value behind changes can lead to employee turnover and frustration. Without the expertise of leadership and EAs from the combined entity, it will make it much more difficult to develop a new and strong technical environment, resulting in a weak future IT landscape

Additional business challenges surrounding post-merger integration include:

  • Cultural integration
  • Process integration
  • Stakeholder alignment
  • Regularly evaluating PMI performance

 

The Importance of Post-Merger Integration for Businesses

A combination of factors has not only increased the complexity of post-merger integration but made it more critical than ever in the ultimate success of M&A. The first of these reasons is due to today’s symbiotic relationship between business and technology. These digital assets are the pillar for creating, maintaining, and monetizing customer relationships. They automate processes and operations, saving costs and reducing overhead — and they allow employees to thrive in their roles while creating value for the organization.

The digital age has also influenced the driving forces behind inorganic growth activity. In the past, companies would pursue M&A deals to realize economies of scale — such being that they capture a larger customer base and increase their negotiating power. Recent years have told a different story.

As noted by Bain & Company’s Corporate M&A Report 2020, organizations are shifting toward scope deals. The goal of a scope deal is to extend business capabilities and modernize operating models to achieve new revenue streams by way of innovation. Nearly 60% of all 2019 mergers and acquisitions were classified as scope deals, as opposed to just 41% in 2015. Among technology companies, that number jumped to 82%.

With enterprises shifting operations to thrive in a digital world, their integrations and technology assets are essential components during PMI. Without the proper stakeholders in place, and the right tooling to support their efforts, harmonizing the IT environments of separate entities is bound to fail.

 

 

Conclusion

Regardless of the reasons for doing so, mergers and acquisitions will remain a key trigger for growth. The challenges of successfully executing a deal, however, have grown drastically in the modern era.

The process of integrating organizations amidst the complexity of modern IT landscapes is a burden that weighs most heavily on enterprise architects. These teams sit at the intersection of IT and business, and therefore at the heart of post-merger integration.

Following the recommended 4-steps to streamline post-merger integration is critical to gain the visibility leaders need to make the right decisions, the first time around. The most important step toward unifying entities is to create a joint capability map based on the corporate strategy. Doing so will lay the foundation for all future activities and help accelerate the realization of synergies between the underlying technology landscapes.

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Answers to frequently asked questions on post-merger integration

What is post-merger integration (PMI)?

Post-merger integration is the process of unifying two entities and their assets, people, tasks, and resources in a manner that creates the most value for the future of the enterprise by realizing efficiencies and synergies.

What is a post-merger strategy?

A post-merger integration strategy is a process after the merger or acquisition, required to maximize the value of people and technology for an organization.

Most successful integrations can be done with the enterprise architecture tools like the LeanIX EAM during which enterprise architects help teams to easily overcome the technical challenges associated with mergers and acquisitions and hasten the transition from current to future-state architectures.

What happens after merger and acquisition?

Two entities are unified in a manner that creates the most value for the future of the enterprise by realizing efficiencies and synergies.

Steps required in the post-merger integration are as follows:

  1. Creating transparency of the IT landscape
  2. Performing application rationalization
  3. Building a target architecture
  4. Application road mapping
  5. Business capability mapping
  6. Scenario integration

Why do post-merger integrations fail?

Post-merger integrations most often fail due to business and technical challenges when unifying two entities.

Business challenges most often include lack of strategic direction, need for change management, cultural and process integration, stakeholder alignment, and regular performance evaluation.

Technical challenges include a lack of visibility into technical assets, their dependencies, and relation to business capabilities, compliance with cybersecurity standards, and inadequate resources from both a talent and tooling perspective

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