For senior CIOs, knowing how to respond to an M&A and divesture situation is key, as mergers, acquisitions and divestitures are a critical component of business strategy.

Projections for European M&A transactions show total deal values are set to rise from US$621 billion in 2014 to US$936 billion by 2017. M&A activity is likely to be bolstered by continued positive monetary policy, with additional cross-border M&A activity likely to take place as a result of a strong US dollar, primarily in Spain, Germany, and Italy.

Increasingly, businesses are using M&A to grow their organisation, achieve economies of scale, expand product portfolios, globalise and diversify.

In the intense negotiations around this business change, IT operations are likely to face dramatic reorganisation as various stakeholders analyse existing systems and look at the potential for efficiencies.

This is about survival and the IT division is likely to be under intense scrutiny during this period, under pressure to perform critical functions such as the integration or separation of critical systems and data, the provision of an uninterrupted service during the transition period, and the prompt delivery of synergy targets. IT strategy is therefore core to any successful M&A or divestiture plan and a critical contributor to its success or failure.

Increasingly, CIOs are under pressure to meet these challenges quickly and at lower cost. Their ability to do so can even impact the way analysts assess potential deals. IT dependent synergies have been found to be responsible for a large proportion (30 to 60%) of M&A benefits, but 70% of M&As fail to meet their synergy targets in the planned timeframe.

Realising these M&A and divestiture targets for enterprise IT environments is complex and requires a holistic approach that considers public, private, IaaS, PaaS, and SaaS as well as non-cloud delivery models.

Some CIOs may approach the situation by simply making adjustments to the existing IT landscape – from CRM, ERP through to office.

This can involve singling out certain components of an established Enterprise Resource Planning (ERP) system, cloning the existing ERP environment, deploying existing systems into the acquired business asset or transferring data between differing systems with the expectation that no issues with integration will arise. These approaches have certainly worked in the past, but can be costly, challenging to implement and disruptive.

This is why many CIOs are looking at a move towards cloud-based applications and infrastructure, which can take the pain out of the M&A process. Broadly, the drivers for moving to cloud services are increased agility, speed, innovation and lowering costs.

They can help organisations going through mergers and acquisitions to realise synergy benefits more quickly, simplify integration and accelerate the change programme, reduce costs through efficiencies, mitigate costly migration investments and encourage financial flexibility.

Top cloud benefits for M&A:

• Achieving synergy more quickly: Cloud enabled applications simplify portability, integration and deployment.
• Lowering costs: The cloud can provide temporary burst capacity for the migration.
• Increased financial flexibility: Cloud provides a flexible cost model, allowing organisations to easily move between CAPEX and OPEX to impact EBITA and cash flow.
• Simplifying changes: Cloud simplifies the creation of APIs to hide the underlying complexity of multiple, overlapping systems.
• When preparing for an M&A or divestiture, it’s worth considering what the future IT model will look like, which APIs are needed to simplify required activities and how applications can be cloud enabled for portability and deployment.

Developing a repeatable platform that delivers these benefits and simplifies M&A activities will greatly improve an organisation’s ability to grow and be successful. It may even open up new opportunities that might not have been possible without the cost, flexibility, and scalability benefits that cloud solutions can deliver.

With businesses already realising real benefits, the cloud’s role in M&A is only set to grow. By building a cloud model that works, organisations can avoid reorganising IT operations for each merger or acquisition and ensure a much more seamless transition.

Through implementing an approach that can speed the execution and success of these deals, CIOs can look to deliver value from the IT department that goes far beyond just support, to true business leadership.

Written by Sebastian Krause, General Manager for IBM Cloud Europe