"IT Integration Is Usually Underestimated And Under Budgeted"

David Briskman, VP & CIO, Ranbaxy Laboratories talks to Biztech2 about some of the finer aspects of merging IT systems in M&A.

Do you think that it’s a good idea to involve IT early in an M&A scenario?

Yes, I do think that IT should be involved at an early stage.

In today’s context - especially in the pharmaceutical industry - information is a major source of competitive advantage and significant value is locked in intellectual property (IP). IT systems play a key role in both. A careful assessment of the current state of the IT systems not only helps in more accurate valuation but also helps the team in better planning for the integration of the two companies, post merger.

Involving the IT team early in the process facilitates accurate evaluation of investment decisions and their timing.

So would you recommend making CIO a member of the executive M&A due diligence team?

Yes, of course, the CIO should be a part of this team. IT is critical and integration of IT systems of two parties can often determine the level of sophistication with which the M&A activity is carried out. By being a member of the executive team CIO can get a clearer view of the merger objectives which can help him devise a suitable course of action best aligned to those objectives.

More from Biztech

Future Group - Reliance Retail Deal approved by CCI RBI ban on cryptocurrencies takes effect; prohibition could force investors to tap the black market

Some of the things that the CIO has to do include getting the IT team involved in making cost estimates at the pre-merger stage and developing an IT integration plan post-merger. He also has to envision the post-merger business applications, IT infrastructure and the IT organization and assess the business value of the IT assets / systems of the company being acquired.

What are some of the elements CIOs should examine when they do a due diligence?

The CIO has to do a complete due - diligence from an IT perspective and understand the business priorities / results expected from the merger. One of the more important aspects that he needs to consider is the business case for the M&A and examine the things required to meet the business goals of the new merged entity. In addition to this, he also needs to check if there are any immediate needs that require rapid integration or technology deployment. In such instances, usually the most immediate needs tend to be basic communication (e-mail), intra-net, security and financials.

CIO should assess the current state of IT for both the companies and carry out an audit of current IT infrastructure - LAN / WAN / Servers / desktops etc. This also includes the application landscape and its integration, hardware, software and IT services vendors and contracts.

What sort of challenges can CIOs expect to encounter in an M&A?

More often than not, retention of key people tends to be one of the bigger challenges in such a scenario. Information security and old, out dated systems tend to be other issues that CIOs often have to deal with. They should analyze scenario and eliminate systems that aren’t compliant with legal or government regulations.

CIOs have to be realistic about the staff needed to support restructuring related IT changes and take cognizance of the differences in organization structure, business processes, people and culture.

Another issue that CIOs might encounter is budgeting and financial resources available to them. IT integration is usually underestimated and under budgeted, particularly if IT is not involved early in the decision process.

When merging two IT departments who should take the wheel, the acquiring IT division or the target?

While the lead needs to be taken by the acquiring IT department for the simple reason that in the new scenarios - the policies, procedures, systems and structure of the acquiring organization have to be implanted within the acquired organization. The target organization which may have the best of systems and procedures; but these need to be dovetailed / integrated with the ’new’ parent. The only exception to this is when the acquiring company is taking on a larger entity and the technology platform of the larger company and its staff may be better suited for the overall enterprise. However, the entire exercise must be approached in a collaborative and combined way.