M&A, Business Models and Ecosystems in the Software Industry

Karl´s blog

Posts tagged manda
How Real-Time Transparency Makes PMI Meetings Effective

Your Integration framework is in place. Functional leads are fully armed, and at their battle stations. Ready… Set… DAY 1!

As soon as the clock starts ticking, every second in a PMI project matters. Speed in M&A integration execution does bring value and it correlates to the success of M&A. With the ever-decreasing timeframe in which integration leads are expected to realize synergy targets, there are few things more important than a structured and diligent integration plan. But when day one hits and Pandora’s box is open, being able to track the success of your plan in real time is crucial to hitting your targets.

Weekly meetings are the lifeblood of most integrations, and have been the best practice until recently. Whether it is program meetings, project meetings, or Executive Steering Comittee meetings, there are a few data points that need to be tracked consistently at a high-level.

  • Issues

  • Task Status/Milestones

  • Timeline

  • Responsibility

Classically, the integration leaders ask for updates from each functional lead/project manager, and get a verbal play-by-play of the past week’s happenings. In our current, tech-driven world, there are now digital tools that can increase meeting productivity and give M&A teams instant transparency into their processes. Integration team members can see what’s happening prior to meetings, ensuring focus on how to address issues, decisions needed, cross-stream dependencies, etc. This means that meetings’ action items are clearer, and time is spent proactively working towards targets, rather than retroactively getting updates on who did what, when.

Each of the integration performance items above are affected by the PMI teams ability to have “real-time” visibility:

Issues

Having instant visibility into the status of any potential issue enables corporate development teams to address risks before they damage the deal. Any PMI project will run up against unforeseen challenges, but proactively resolving issues leads to an increase in deal speed and value realization.

Task Status/Milestones

Many teams have thousands of tasks per integration, but there are always key milestones against which success is measured. Having the opportunity to check on the mission-critical items at a moment’s notice shortens the feedback loop within teams and empowers integration leads with the information they need to benchmark their teams against their schedules in real time.

Timeline

Let’s face it. Integrations very rarely hit timeline expectations. But, knowing where you are in relation to your goal is crucial. Having that 1-week gap in status update between team meetings might just be the difference between being on time and falling far behind.

Responsibility

PMI projects have many moving pieces in play. Governance is complex. The PMI leads manage the functional leads, who in turn must allocate resources from within their teams. Having a central platform that acts as a single source of truth is invaluable. Immediately, it becomes clear who is responsible for a task, who has signed off on what action item, etc. When there are multiple chains of command, being able to see changes in real time gives Integration leads the bird’s eye view that is needed to execute.

To quote Mark Herndon of M&A Partners, "The time has come to upgrade M&A integration management processes with simple, secure and state-of-the-art software solutions." This real-time transparency gives cutting-edge PMI teams full visibility and control in the perfect storm that is integration.

Merger integration success based on best practices

Merger integration success based on best practices

With all the mergers and acquisitions activity going on in the markets, it is paramount to perfectly manage the planned integration of targets into the acquiring company.

The integration strategy and the integration approach is different for each merger and each merger has different synergy objectives.

This page is meant to shed light on recent state of the art knowledge and business practices for post merger integration. It tries to structure the problem and thus to provide a way to find the best approach for post merger integration.

When to start with merger integration related tasks

We introduce merger integration due diligence as a new type of due diligence that arises from the objective “Maximize likelihood of integration success”. See the separate page for this topic.

The task of post merger integration

An important ingredient in acquisition strategy is how you integrate the acquired company. Let us describe the task of post merger integration with goals and objectives. You have to think well about goals and objectives, since these will define what is being done through merger integration.

The goal of post merger integration is to plan and execute the integration of two businesses. WIthin each business, there is an organization and there are many processes, which are to be aligned and/or integrated.

Objectives of the merger integration task are:

  • Maximize likelihood of integration success: each merger integration tries to reach successful completion meaning that there is no failure of the integration.

  • Continue target operations: in most cases, it is important to not interrupt the target operations with merger integration activities.

  • Fit integration type: there are different ways to integrate two companies, which are determined in the integration strategy. more information about merger integration types can be found here: Merger Integration Types

  • Fulfill synergy objectives: every merger has synergy expectations and objectives. Merger integration is targeted at creating such synergies.

Decomposition of the merger integration task

There are three subtasks: designing the new entity, planning merger integration (project) and executing merger integration project.
The first two should be started during due diligence to ensure merger integration success.


MergerIntegrationTaskDecomposition.png

The four Merger Integration Types

In the high level model below, you end up with four generic types of post merger integration:

  1. Preservation: The target company is preserved meaning that you leave the target company autonomous. Nevertheless, integration of financial reporting and financial processes might make sense.

  2. Holding: The acquiring company just keeps the ownership of the target company, but does not integrate the target company.

  3. Symbiosis: In this merger type, you decide where integration is needed to reach the objectives of the merger integration.

  4. Absorption: the acquiring company fully absorbs the target company. All organizations and processes of the target company are to be fully integrated into the acquiring company.

integrationtype.png

Stay tuned, listen in on twitter @karl_popp and connect with me on Linkedin for more best practices.


Why online learning must be part of an end-to-end M&A process management tool

Let us have a look at the situation for mergers in most companies. How are people working esp. in merger integration prepared for sucess?

Which people work in post merger integration?

An acquirer has a large project team for post-merger integration and so does the target. How do you make sure that all members of the integration team have sufficient knowledge to perform best? The answer is that all project members, not only the managers and project managers, need background knowledge on merger integration as well as lessons learned and best practices from other merger integration projects

What information is needed?

You need to expand the experience horizon of all involved managers into the realm of merger integration specific topics and decisions. According to Kahneman, what-you-see-is-all-there-is might be a problem, which means that people only can cope with situations that are within their horizon. So you have to expand it with content about merger integration theory but also about situations and pragmatics of merger integration.

How to make training work

Many mergers are cross-border mergers with many people in many countries involved. So due to geographic diversity, timezones etc. onsite training does not make sense. Go online.

The solution

Therefore, a group of seasoned merger integration managers created an online training called PMI2go that provides that knowledge as well as experiences and lessons learned from over 250 successful merger integration projects. The solution is an on demand, online training with just the right mix of theory and hands-on situations explaining how to successfully integrate companies. Together with SAP, Bertelsmann, Qiagen and Stada we created an online training for merger integration that fits multiple different industries and is targeted to managers acting in a merger integration situation.

The training has content for managers and project members and covers in detail topics like HR integration, Finance integration, Production integration and Research and Development integration. Find more information here: http://mergerintegration.eu/mergerintegrationtraining.html

Modules of the online training

Modules of the online training

M&A Digitalization: where should data reside?

In past years, there always was a dichotomy: either companies were only on premise, storing their crown jewel data on site, or companies ran certain applications in the cloud. Now, hybrid clouds are on the rise.  This means there are three options now.  

In M&A, data rooms are typically private cloud based storage of highly confidential data during due diligence. Data from other phases are usually stored on site. With all these changes happening and the clear need to manage M&A processes,  where should company store their data about  all phases of the M&A process ?

On premise?

The safest way to store mission critical data is to store them on premise.  locked up.  This is perfect for a the early phases. As soon as more people get involved from inside and outside the company, during due diligence and post merger integration, this approach is not perfect. 

in the cloud? 

Cloud storage makes perfect sense for trustfully giving restricted access to people from different companies. For most companies, this is needed during due diligence and following phases. But many companies also interact with third party companies even before due diligence. 

Requirements for M&A process tools

Customers rule. An end-to-end process tool must respect that. No matter if  customers choose on site, private cloud or public cloud, vendors of end-to-end process tools should give customers a choice. The customer should decide where to store data. 

M&A thought leadership: Gatekeeping and resourcing in merger integration of software companies
This is a transcript of an interview given for a master thesis with me about the integration of a smaller software company..

Question: You mentioned two capabilities, gatekeeping and resourcing . Tell me a little more about these.

KP:  The first one is a gatekeeping.  You acquire a highly innovative software company into a larger  software company and  you want to keep it  as innovative as possible. You want to integrate their offering with the rest of the portfolio. So, the question comes up: Who should build the integration? Which of the many solutions of the larger software vendor should be integrated first?  If you integrate all of them at once, the acquired company is no longer innovative.

 To solve this, you have to oblige gatekeeping.   Prioritize integrations and limit the amount of work to be spent by the acquired company on the integration to allow them to still be innovative.

Question: How did you use resourcing to find people building the integration?

KP: Since the target company had little knowledge about the programming environment of ours, it became pretty clear that the resources had to come from us.

So, we basically came up with a team of, I don’t remember exactly, several dozen people from our organization that actually built the integrations. Again, you have to be very thoughtful of how much of the overall development capacity of the acquired company you want to spend on integration.

Find more thought leadership in my books listed below.

Digitalization of M&A processes: How to integrate best of breed solutions into one M&A process platform

We have to move forward quickly to disrupt existing M&A processes and get the best innovations to get to a digital M&A process. So here are my thoughts, some might be drafty, but i want to get my requirements out now to ensure we all are facing the right direction for digital M&A.

Requirement: we need several vendors to provide innovations

Can the best innovation for all phases of M&A come from one vendor only? Probably not. So how do companies get the best functionality in a unified, end-to-end M&A platform? The platform has to be open, has to have OData based APIs to allow integration with the best of breed functionality for the different phases of the M&A process.

Requirement: We need a metamodel of end-to-end M&A processes and objects

Thirty years of object modelling for businesses are paving the way to create a metamodel of M&A processes. This metamodel should contain the objects and relationships to be used in the M&A process like buyer, target, companies, which are contained in longlist, shortlist, have relationships with data rooms, documents like contracts, patents, financial data etc. etc. In addition we need

Requirement: Standardization is needed

Establishing a standard metamodel for end-to-end M&A processes is key to success. There are three ways to establish it: via the market or via standardization committees or by creating a winner takes it all market for the end-to-end M&A process platform. it will be interesting to see which vendor chooses which approach.

Requirement: An ecosystem of extensions of the end-to-end M&A process platform

Based on the standardization and the OData-based metamodel, M&A process platform vendors can start to foster an ecosystem of innovations for the M&A process. Today, we would need e.g. the following ecosystem of vendors to engage: end-to-end M&A process platform, data room vendor, company information providers, contract analysis providers, machine learning application providers etc.

Summary

With the listed requirements in place, we can move forward quickly to leverage innovations from different vendors. From my point of view, establishing a winner in the end-to-end M&A process platform market is paramount to provide massive innovation to many companies. Several large corporates in Germany are considering to choose such an M&A process platform today to streamline their operations. I will keep you posted if there is one vendor that wins the market or if there are several vendors fighting for larger marketshares at customers.

Like my way of thinking? So feel free to read my book about M&A: M&A due diligence in the software industry. Do also feel free to comment, happy to receive the feedback.

How machine learning can help in digitalization of M&A processes!

Machine learning is everywhere - except in M&A processes. Let´s change that. Let us imagine the impact of machine learning in different steps of a typical M&A process. Let us start by sharing some of my ideas to trigger your imagination. I am convinced that the technologies needed to achieve this vision are in place today, they are just not being used in this context.

Early phases of the M&A process, shortlisting phases

Let´s say you have five companies in your shortlist. Machine learning can help finding and selecting potential targets e.g. by predicting which of the companies considered will be the unicorn, i.e. the most successful company in the list. Approaches for doing that exist, e.g. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3159123

Preparing the Letter of Intent

Based on past projects, machine learning can help to predict deal breakers, find missing or potentially wrong data in the financial valuation of the target and propose deal structure and clauses for the letter of intent based on the existing, available data about the target and the acquirer.

Due diligence

A vital part of the job to be done in due diligence is that you are looking for missing data, for deal breakers and risks in documents in the data room BUT you only have limited time and a huge data lake in the data room. So let us see how automation and machine learning could help us here.

Day one of due diligence: the data room is available. Day 2 of due diligence: Information about missing data, deal breakers and risks is already available.

How is that possible? Using automated document/contract analysis based on machine learning as well as data about deal breakers and historic projects, a machine learning application can provide this information. There is a huge value in this: you get more time in due diligence to work on missing data, for deal breakers and risks, so quality of due diligence results will massively increase.

No more reporting: During due diligence, digital assistants will automatically keep the lists of tasks, risks, issues and results, will create automatic reporting from that and propose next steps.

Merger integration

Results from the due diligence are automatically distributed digitally to all integration team members. Machine learning based digital assistants propose the integration plan, the integration timeline and which next steps should be taken. They analyze due diligence data and propose the set of data that should be doublechecked and validated. They validate that data by extracting information from the target´s ERP systems automatically and present deviations in digital dashboards and propose next steps.

Learning assistants analyze the learning needed by the involved integration managers based on their CV and proposes digital learning lessons based on PMI2GO.

No more reporting: During due diligence, digital assistants will automatically keep the lists of tasks, risks, issues and results, will create automatic reporting from that and propose next steps.

Let us imagine the impossible - and make it work

The opportunities are massive but are not yet leveraged. I think the M&A community has to provide guidance to vendors to achieve a vision i call the Digital M&A Manifesto. Stay tuned for more details. Like this article to get more inspiration!

Digitalization of M&A processes: let´s talk about the data

Digitalization of M&A is about data and data analytics, but also about confidentiality, authorizations and access rights.

  • Establishing a clearly defined, phased, end-to-end M&A process with clearly defined tasks and roles in the different phases (seems obvious, but is not yet implemented, esp. in small and medium countries);

  • establishing a higher degree of automation of tasks (like automated analysis of contracts which needs all contracts to machine-readable), an important prerequisite is to have digital data as much as possible;

  • have one large data set along the end-to-end M&A process (to leverage big data analytics) and clear rules which data are safe to be accessed from the following phase.

So what can you achieve if all these prerequisites are fulfilled, here is my vision:

  • combine structured and unstructured data for unimagined insights : you have financial data, but are they solid and trustable? do the revenue numbers projected reflect the existing contracts with customers? In due diligene, by combining structured information (revenue forecast) with unstructured information (text in contracts, information about pipelines in the data room) you can easily compare both to establish additional trust or to ask tough questions.

  • leverage data across phases of the M&A process: there are restrictions which data from due diligence can be used in later phases. But the data that you can use from target screening and due diligence can be combined and compared with data. Current data you are looking at could be augmented with historical data automatically.

  • actionable insights across M&A projects: the data from all phases and all M&A projects can be used to determine actions in a specific situation. Based on machine learning, an automated assistant could propose what to do, what has been done in other projects in similar situations, could propose who to talk to to leverage the lessons learned from other projects.

So the call to action is: Unite your data on and end-to-end platform to build the foundation to leverage the data for better insights, better execution and more success in M&A processes.

Digitalization of M&A processes: Advantages of an end-to-end, unified platform
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An end-to-end, unified platform builds the foundation of M&A success. End-to-end means that the platform covers all phases of the M&A process from early strategizing to deal sourcing to due diligence, signing, closing and integration. All data are combined to one single source of truth, no data are lost between phases, better and well documented handovers are possible between phases.

Unified platform means no more jumping between different solutions and tools. t eases the pain of processing massive amounts of data, be it the data room or planning data for integration planning. For due diligence, this includes combining collaborative due diligence management with virtual data room capabilities.

While there are many advantages of such a platform, let´s just look at three key advantages.

Advantage 1: A unified data lake for all deals

The data lake covers all process phases and all deals allowing e.g. cross-deal analytics, large training sets for machine learning, proposals of next steps based on best practices from all deals. The data lake contains massive amounts of information, but all information used in the process, information about the process steps and decisions taken is stored in one place.

The load of information in M&A processes is already overwhelming? So how can i leverage this large amount of data? Modern information system technologies like predictive analytics, finding outliers within data, semantic analytics and forensic tool to analyse and navigate large data sets as well as providing the right information for your current work context will enable you to leverage the data collected.

Advantage 2: Better decision are being taken and documented

There are two aspects of this advantage: decision journey and augmentation. For each decision taken, you can always recall the decision journey. How was the decision prepared, who took it, what were the consequences, were the goals of the decision reached?

The second aspect is augmentation of decision tasks: if you are the decision maker, augmentation provides you with similar decision taken in other deals including their impact on results in the integration phase, so you can make the best decision. The augmentation in the deal sourcing phase e.g. includes market data, financial data about all targets and predictive analytics about the future success of the target companies.

Advantage 3: Less documentation and reporting: More productivity

Massively increased productivity and less errors due to robotic process automation. No more learning of process models, they will naturally be followed. No more thinking about what the next step is or what your project status is, all information is augmented in your usual workplace. Reporting annoys you? The platform will autmatically propose the content for the next status update, so you spend less hours on reporting, more on quality work and problem solving.

Outlook: where´s the platform?

So, now we know some of the advantages of the platform: one question remains: is the platform your work environment and do you have to learn a completely new work environment that does not naturally integrate with all the other productivity tools that you are using: email, teleconferencing etc.? The platform i envision will be invisible, you will work in your usual work environment, e.g. using a Windows tablet with Outlook and other tools you know. the platform will track your work and augment inforrmation as you work, no separate login, no missing integrations that get on your nerves.

If you liked this article, you will like my book about due diligence.

Let us cover the final frontier of digitalization: M&A processes!
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While many business processes are automated, use big data analytics and digital assistants, we seem to run M&A processes like it is 1999. Imagining what is possible today, we are on the verge of disruption in M&A.

What is needed?

Here is the list of requirements to massively digitize the M&A process:

  • end-to-end process support from early phases to end of the integration project,

  • Digital learning for M&A knowledge,

  • Semantic analysis of available data of acquirer and target and then leverage the semantic data to navigate the data via assistive technologies, like automatic analysis of legal documents,

  • assistive technologies like chatbots, robotic process automation and digital assistants that help managers watch risks, ask the right questions and propose proper next steps,

  • big data analytics: data rooms are a large data set, so why dig through it manually?,

  • Use of forensic technologies for understanding and investigating data room content

  • Automate IT due diligence by using scanners for analysis of networks, applications and interfaces,

  • Automatically analyse content of existing ERP systems for due diligence, merger integration and migration of ERP systems.

What is already digital?

  • Learning: see PMI2GO: digital online learning for post merger integration

  • Data rooms: Trusted file stores for due diligence are digital. But is file store digitalization driven far enough? No. Not yet.

  • Process digitalization: There are M&A process tools that allow partial automation of management tasks. But do we get digitalization with chatbots, assistive technology based on machine learning? No. Not yet.

The opportunities are massive but are not yet leveraged. I think the M&A community has to provide guidance to vendors to achieve a vision i call the Digital M&A Manifesto. Stay tuned for more details.