Private equity: The advantage of integrating top technologies

The Canadian landscape has changed considerably since 2020, with mergers and acquisitions of businesses both large and small having a massive economic influence. The act of acquiring a company brings its own complexities – whether it’s a share or asset buy, more than a brand and its client base are being acquired but at times, also its operations, finances, teams, licenses, contracts, etc.

In a complicated transaction, the team directed to acquire and manage each aspect of the transaction must be able to do so with accurate information and technologies that lay the foundation for sustainment, growth and development.

In phase 1 of the merger and acquisition process, you’ve completed the necessary due diligence. Now in phase 2, it is time to embark on the ever-evolving technology and management services integration.

Conduct a fit-gap analysis

Consider the journey of searching for a new home. The process begins by establishing key characteristics that the property should have in order to meet your specific needs, at a specific price. If a home does not meet that criteria or does not hold the potential for future development such as adding on a deck or renovating the interior layout, the search for the ideal property continues. In doing so, you are effectively conducting your own fit-gap analysis to see if what fits and serves your needs, outweighs any gaps or hindrances that you will have to either consider at a later time or forgo altogether.

The process of buying a home and ensuring it is the right fit can also be applied when discussing the integration of solutions and/or financial planning within the mergers and acquisitions process. The current state of operations may be the starting point in addressing technologies utilized and financial data in place. Still, it is the future of these tools and resources that are acknowledged when conducting a fit-gap analysis- allowing the companies involved to understand what they have access to, what the limitations are, and if there is the potential to expand and grow to their specifications.

A fit-gap analysis answers the questions, “Where do you want to be? What do we need to do? What potential limitations do we need to address?” When performing a fit-gap analysis, every functional area of the acquired business needs to be examined. Your team must determine if the technologies and processes utilized by the newly acquired company fit with the technologies and procedures used by the parent company. In identifying the areas that fit, you need to acknowledge the sites that contain a gap. These gaps reveal areas that teams must address, whether it be identifying antiquated tools and resources, acknowledging a lack of infrastructure that leaves teams underserved and underutilized, and financial data that supplies more questions than answers. It is only by conducting a fit-gap analysis that the appropriate solutions to fit those gaps can be sourced, implemented, and activated.

When you actively assess the business’s needs against the capabilities of the tools already in place, such as an enterprise resource planning system or a financial planning and analysis toolkit, a common language can be established. This common language will help determine both the objectives and strategies required for future growth and development to be set out in an integration recommendation playbook.

Craft an integration playbook

An integration playbook or roadmap is an invaluable tool designed to bring together tools, team members, and solutions responsible for its successful integration after the acquisition process. A playbook establishes a high-level outlook and then details the necessary steps to execute a successful integration. Functioning as both a guide for integration and growth strategies, it draws on the results of a fit-gap analysis to show the required next steps.

Growth is never by mere chance; it is the result of forces working together.

– JC Penney

Consider a Gantt chart, typically utilized by project managers in digital transformation initiatives. A Gantt chart sets out clear goals and when they need to be completed. Each goal is then assigned to a specific individual who must accomplish their tasks on time; otherwise, the entire project is delayed. Another level of complexity comes into play when one team member, such as a developer, can only complete their task after a specific design has been created and approved by the client. Therefore, each timeline must be respected, and every team member must complete their work when required, in order for the project to be successful. It’s an integrated plan to get to an end state and is the actual execution of work needed to be completed as presented by the theory of change established within the fit- gap analysis and the associated interdependencies between people, process and platforms.

When creating and utilizing an integration management rollout, the playbook acts as a project plan, every member has a clear understanding of what they need to accomplish. When finance and operations can move forward, stabilization, than growth strategies can be implemented appropriately. To effectively create a playbook that aids your team throughout the process and provides a baseline of information on which to create a transition plan, it should consider the following people, processes, and platforms:

  • All financials should be measured appropriately and take into account balance sheet, income statement and cash flows considerations. This is for both a roll-up reporting structure, but also from an opco performance standpoint.
  • All standard operating procedures including systems needs to be tabled to help determine if the current state of operations is sustainable in the short term, but adequately positioned to meet future state requirements.
  • Any risks or abnormalities to the company is described in full, with proposed solutions in place. This can consider changes in regulations, liabilities, extreme profit growth or loss, cost of divestitures, etc.
  • Tools and technologies that are required to bring together the moving parts of both companies into a single and refined hub of information.

A proper integration management strategy can set a standard for speed of execution, consistency between departments, and a foundation for measuring progress, but how can you ensure that your strategy or playbook is fully utilized once the high of the buy is complete?

Integrating technologies and support functions

A fit-gap analysis is a good starting place and when it has been completed and a playbook can then be established. Teams now have an understanding of the specific processes and applications they are to change, upgrade, replace or implement to help ensure that the transition to the new operating model is sufficient, while helping ensure the transition is as least disruptive as possible through the proper change management controls.

Mergers and acquisitions are complex, especially as teams are amalgamated, licenses are transferred, contracts are absorbed, all while ensuring revenues do not dip. How are executives and financial officers to accurately stay abreast of the transaction while preparing for the future of the company? Through integrating key tools and technologies designed to execute on current and future business strategies.

Financial management systems whether it be Enterprise Resource Planning (ERP) or Corporate Performance Management (CPM) which offer financial planning and analysis efficiencies are designed to take the guesswork out of the mergers and acquisitions process. Through connecting with preexisting tools, features, and integrations already available, they fill many gaps that may have been identified earlier in the discovery process. Rather than only seeing one part of the entire picture, proper financial controls often sustained through a modern financial management application encourages and provides a platform for streamlined data and models, automated workflows, tracking of resources, and financial planning and consolidated reporting. Establishing the fundamentals of what post-deal collaboration can look like often begins during due diligence. We set out to partner with Private Equity firms to understand your strategic initiatives, platforms, and data readiness are sustainable for growth, and then we apply our experience to help ensure the same across your portfolio companies with MNP’s integration management services.

If you are interested in learning more about the advantages of a technology enabled integration framework, contact us and we will assist in the creation of your fit-gap strategy, conducting your fit-gap analysis, and help you source the appropriate digital strategy that is designed to provide you with answers and information when you need it.

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Authors: Dan Caringi and Kerry Mann

Dan Caringi and Kerry Mann are Consulting Partners with MNP and leaders within the firm’s national Digital Enterprise practice.