Mergers and acquisitions (M&A) are a proven strategy for firms to grow quickly by expanding the brand geographically, creating new products and or, enhancing their current offerings. The M&A trend is only set to grow in the coming years, and firms looking to take advantage of these opportunities must consider how they can improve the enterprise operational aspects of the expanded brand and owning entity and - fulfilling the expanded brand promise - from a process point of view as well as the IT systems that support the new entity.
There are many opportunities that present themselves within M&A processes, but at the same time, there are also many challenges that must be considered when it comes to technology integration, post-M&A. Many mergers run way over time and budget, making the original business strategy and proposition less valuable to a more encompassing corporate. In some cases they might fail due to integration hurdles. To mitigate this danger, it is important for firms to consider their IT and data strategy at the start of the process, to help ease the technical aspects of the final M&A ‘picture’ and reduce costs and time scales.
When a corporate enterprise grows through a series of mergers or acquisitions, multiple ERP systems and banking relationships are usually inherited. Over time this leaves management with the increasingly difficult and time consuming task of how to consolidate and or, standardise financial messages and payment flows from corporate subsidiaries into the central treasury, and then onward to the banks that service their payment flow requirements. Traditionally this tends to be seen as a systems solution decision, one where the firm would ideally unify all systems into one ERP systems provider, or at least, a choice of ERP systems across all subsidiaries that are easily compatible – a systems replacement strategy if you will. However, this is a path that is expensive, complex and risk ridden.
Post-acquisition, several routes are commonly explored, the first of which is typically an ERP system consolidation. Ideally, a corporate requires a central treasury function to manage the cash flow and payments of all departments and subsidiaries, so that it can consolidate the number of banking relationships it has and leverage the advantages of volume in its dealings with the bank. However, the diversity of the localised ERP systems’ payment formats within its corporate subsidiaries remains a barrier in the implementation of such plans for consolidation. Furthermore, consolidation only works if one of the systems can handle the needs of the combined companies and the respective geographical/local banking regulations of all these ERPs.
The next logical step is for the firm to look at a full system replacement. But as with consolidation, this is a costly and time consuming option and presents a very real risk of slowing down the entire merger process. In both of these situations, you eventually solve the problem of integrating disparate data and messages, but what happens if the firm acquires further subsidiaries in the future with yet more differing ERP systems? Is this approach scalable and sustainable?
It is important to take a step back and look at this from a different perspective. In most cases, this is actually a data management challenge rather than a systems issue. The key is to take an approach that enables the understanding and integrating of the plethora of messaging standards that are typically inherited in mergers or acquisitions activities, without having to plan and execute a complete systems overhaul. The complication is not only due to differing systems but also the local, regional and geographical flavours if the acquisition is across geographies. Initiatives like SEPA have tried to harmonise this across Europe, but such initiatives are far and few across the globe.
A data integration solution should take all the diverse data formats into a central format for the central treasury to process, apply business rules to and then orchestrate the payments to banks with whom they have a business relationship dealing with particular specialist services. The solution should provide the central corporate treasury with the flexibility to route the payments to its respective destination banks based on the attributes of a specific payment, for example, attributes of: originator, currency, value and so on. Moreover, the outward formats, from central corporate treasury to bank, should also be configurable, which means that the treasury is no longer restricted in the technical aspects of financial message and data payloads when it comes to relationships with banking entities. More so, the solution should have inherent automation and flexibility when it comes to a completely new territory or region, i.e. instill the confidence that data management and consolidation of banking relationships should not even be considered during the M&A decision making process.
Potential configuration for end-to-end corporate intraconnectivity
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By using such a data solution, the complexity of the technical on-boarding process, be it from corporate subsidiary to corporate central treasury, or from corporate treasury to bank, is simplified through a managed workflow with easy definition of business rules, data transformations, validations, enrichments and orchestrations. This enables the central corporate treasury to on-board the subsidiaries’ formats by configuration, meaning that the data integration issue is resolved without initiating and undergoing a full scale IT project. Instead, this allows the subsidiary to maintain their original systems, messages and data, making the data integration aspect of on-boarding much more efficient and considerably less costly; a project that would normally take months, could now take weeks to complete.
We believe that firms growing through acquisition are missing a trick – a data trick. Looking at the problem from a data management, transformation and integration angle creates the possibility of a cost effective solution that can be implemented quickly. Rather than thinking of the issue as a systems replacement one, firms are able to integrate their systems with ease, which also presents the opportunity to introduce efficiencies not previously experienced. It is important to find solutions that cope with diverse data formats; one that is simple and configurable to use, therefore solving the technical on-boarding complexity. The end result? A straight-through-processing system from corporate subsidiaries, controlled and monitored by central treasury through to the servicing banks, and all in an agile manner with the benefits of speed and flexibility as a business process led experience rather than that of an IT project.
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