Can your ERP platform support your organization’s merger and acquisition strategy?

31 July 2017

Julien Delvat

Julien Delvat

SAP S/4HANA Consultant

Many of you reading this will either be acquired, acquire or merge with another entity in the not so distant future.  As a CIO or CFO how do you ensure that these integration changes are successful?  Julien Delvat, CoE Lead, looks to Enterprise Resource Planning (ERP) solutions that can smooth the way to a successful transition.

In 2016, the value of mergers and acquisitions (M&A) represented a market of more than 4.7 billion U.S. dollars [1]. Yet, studies reveal that 70% to 90% of mergers and acquisitions fail to deliver the expected return. This represents between 3.3 and 4.2 billion US dollars lost in shareholder value.
 
“The success or failure of an acquisition lies in the nuts and bolts of integration”, says Harvard Professor Clayton Christensen [2]. Innovative CIOs understand this very well and have adopted a 2-tier ERP strategy supporting mergers, acquisitions, and divestiture.
 
Is your ERP platform ready to support your organization’s merger and acquisition strategy?
 

Integration mistakes can be costly

In 2005, eBay acquired Skype for approximately $2.5 billion. About four years later, the same company was sold for $1.9 billion [3]. Several case studies pointed to integration as one of the top reasons for this failure [4]. Neither company succeeded in positioning Skype as the default communication medium between eBay’s buyers and sellers.
 
With a total market cap of $30 billion, the merger between Sprint and Nextel in 2004 was considered a marriage of equals. This situation has been reported to cause many integration failures: double headquarters, different customer bases, opposite cultures. “Additionally, differences in systems and processes can make the business combination difficult and often painful right after the merger.” In 2008, $30 billion were written off by Sprint. [5]
 

Integration beyond systems

One important caveat to understand here is that integration shouldn’t be limited to systems and software. Integration should extend to people, operations, and business processes if organizations want to realize the expected synergies.
 
In addition, M&A projects are frequently led by the office of the CFO. In such cases, the focus might be limited to a financial integration. For legal reasons, financial consolidation is critical and should be setup in a short timeframe. But this cannot be last mile; systems, data, and processes need to integrated as well to improve operational efficiency.

How 2-tier ERP strategy prevents integration mistakes

If integration is key to a successful M&A project, how can innovative CIOs setup the right ERP platform to prevent costly integration mistakes? With Central Finance, SAP has integrated the right components into its latest ERP, S/4HANA, for a successful integration.  This goes beyond just interfaces and APIs. The software comes in 2 editions: S/4HANA On-Premise (that can be deployed within your own data center or in the cloud) and S/4HANA Cloud. Both share a common code base, a single user interface, streamline processes and single language.

 
SAP S/4HANA: On-Premise vs Cloud Edition. Source: SAP
 
During a merger or acquisition, systems of the acquired company (SAP and non-SAP) can quickly be connected and data can be transferred at transactional level. We call this process Central Reporting and it enables organizations to quickly deliver the legally required financial consolidation.
 
Later, the acquired system can be replaced with an S/4HANA On-Premise or Cloud system to leverage common processes, especially for Shared Service Centers. We call this scenario Central Operations. Lastly, systems can be merged or a new system can be generated and data exported in case of divestiture or spin-off. This case is called Landscape Transformation.

 
 

In short

Too many M&A's fail due to integration mistakes. Shareholders rely on innovative CIOs to deliver operational efficiencies with integration going beyond finance or software and covering people, operations and business processes. To do so, SAP S/4HANA Central Finance enables 2-tier ERP platforms for Central Reporting, Central Operations, and Landscape Transformation.
 
Source:
 [1] Value of mergers and acquisitions (M&A) worldwide from 2011 to 2016 (in billion U.S. dollars)
[2] The Big Idea: The New M&A Playbook
[3] eBay Inc. Completes Sale of Skype
[4] The Top Reasons Why M&A Deals Fail
[5] Biggest Merger and Acquisition Disasters


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About the author

Julien Delvat

SAP S/4HANA Consultant

With over 15 years’ experience of developing cost management applications at SAP Labs France, coupled with significant experience of architecting, designing and implementing these systems for clients across the globe and industries, Julien is perfectly placed to offer Bluefin’s customers unrivalled expertise in the colliding worlds of finance and technology. It’s not with good reason he’s known as a ‘Costing Geek’!

When it comes to collaborating with clients, Julien likes to get under an organisation’s skin. He wants to know what makes a company tick, what their priorities are and what the reality is on the ground. Doing this assists him to build information systems that reflect their true business needs.

Julien’s contributions to the SAP Financials community have been recognized through publications in professional blogs and journals like SCN.com and SAP Expert, as well as multiple speaking and panel opportunities at conferences like SAP Financials, SAP Controlling, Sapphire / ASUG, and SAP TechEd. He is most passionate about his roles as an ASUG volunteer for the Financials community and as an SAP Mentor, working as a trusted advisor to build new communication channels between SAP and its customers.