It’s no secret that mergers and acquisitions are an active function of today’s accounting profession. Unfortunately, the M&A process is often conducted in tight secrecy, with only a privileged few aware that an acquisition is being planned. As a result, the transition is much harder and more complicated than it needs to be.It’s not unusual for IT staff to hear, “We’re bringing in 20 new people next week. Get them set up.” A slight exaggeration, perhaps, but closer to the truth than many believe.

A proactive approach in which IT staffs from both firms are involved early in the planning process is far more productive. After all, IT infrastructure is the largest investment (other than people) and a critical asset that can and should be improved upon. Early and detailed IT planning can help a merger unfold much more smoothly.

The Boomer Technology Circles, an organization made up of over 150 forward-looking and technologically progressive firms, has been the forum for a number of lively discussions on this topic. The rest of this article will draw upon those discussions and relate some best practices and lessons learned in M&A planning.

IT planning should begin as early as possible. Establishing transition teams (within both firms) and points of contact on each side to communicate important details are critical first steps. Below are some key considerations.

* Hardware. Examine the age, brand, model and configuration of key hardware pieces used by both firms. This examination should include file servers, related networking gear, and desktop and notebook computers, as well as cell phones and PDAs.

Many firms have found that a “rip and replace” approach is less costly in the long run. Regardless of the age and condition of the acquired firm’s equipment, support burdens decrease when that equipment is replaced with the standard in place at the acquiring firm. This facilitates “ghosting” machines with a standard application image and simplifies periodic updates with patches, service packs and security enhancements.

* Application software. The experience of many firms strongly suggests that applications should be standardized across the combined firms. This means one tax software, one audit application, one e-mail system, one document management program and so forth. Data conversion from a replaced system to the new one and backward compatibility are two major considerations with software. This means that a few machines may need to be kept with the old application installed to look back to prior years’ data if all data is not converted to the new system. Data conversions, of course, must be rigorously checked and tested prior to shutting down the systems that created the data.

* Network architecture. This increasingly refers to the use of remote-access technologies such as Citrix or Terminal Services to access servers. There will be significant issues if the acquired firm does not used these technologies but the acquiring firm does. Running a centralized application base has its own set of licensing issues, but also saves hardware expenses at the remote office location.

* Physical location. Will any owners or staff physically relocate because of the merger? Will both offices remain open at pre-merger levels? These questions and many others impact a variety of space and facility issues. The acquiring firm’s IT department may have to plan for additional network cabling, additional telephones, the relocation of shared printers and scanners, and various back office network configuration issues.

* Security issues. The acquired firm will have to convert to the security measures in place at the acquiring firm’s network. These include password policies and standards, policies on usage standards and even the degree of control each individual has over their own computer. Many small firms allow a high degree of user customization, while larger firms control this at a centralized level.

* Communications. If the merger results in the addition of a new office, the acquiring firm needs to plan for wide-area network connectivity and integrated phone systems. In many cases, the pre-merger firms use different communications vendors and service providers. Contracts will have to be renegotiated to add additional users and locations, while hopefully gaining price reductions through economies of scale. Standardizing cell phone service providers and creating or expanding shared pools of calling minutes are other communication requirements that may arise.

* Training. While not merely an IT issue, the impact of training in a merger is huge! If users in the merged firm are required to learn new hardware, application software and remote access techniques, good training is an obvious requirement. Beyond this level of skill training, however, is a layer of orientation and cultural integration. Some firms treat merged employees as new hires and require them to complete the orientation that a new hire would receive.

Training on the combined firm’s operating standards, policies and procedures is also a must. For IT, this may include electronic mailbox limitations, document filing and retrieval standards, and backup procedures. Time and effort invested in training sooner rather than later pays off in smoother operations down the road.

Communicating the combined firm’s support policies is also important. Make sure that everyone understands how the help desk works and the procedures for requesting support. Especially if new applications are involved, reliable and courteous support can build morale for employees learning within a new environment.

* Special issues. Standardizing during a merger is also a perfect opportunity to review software licenses. Make sure that every server and workstation is properly licensed for the user load it supports, and be sure to include special licensing requirements for remote access.

Disposition of old hardware is often an issue. Be especially careful of data security on retired computers. Simply deleting files is insufficient! Multiple formats or special “wiping” procedures are necessary to ensure that client data is not compromised. Some firms allow employees to buy retired machines at a discount price, others donate them to suitable recipients and still others pay recyclers to take them away. How it’s done is not as important as having a plan for it in advance.

* Budget. The accounting profession is beginning to take note of the IT investment required for mergers and acquisitions. As mentioned earlier, a “rip and replace” policy is typically the best approach. Experienced firms now budget approximately $12,000 per user for hardware, software, conversion and training. This may seem high, but I have seen enough budgets and actual expenses to know this number is reasonable. It is more expensive to maintain dual systems, support multiple applications and wait for six months to make the conversion.

BEST PRACTICES

While every merger or acquisition is unique, a few “best practices” can be distilled from the experiences of the Boomer Technology Circle firms. This includes the early establishment of transition teams to identify issues and map the merged firm into the acquiring firm. Firms should document “Day One” standards detailing what must be in place and functional on the day following the merger.

Applications must be standardized across the combined firm. Data conversion issues are critical in these cases. Training and support are critical success multipliers. The faster people are trained, and the better they are supported in their new environment, the more productive they will be. Training is also essential when integrating new staff into a combined firm culture. Finally, intangibles like caring and concerned leadership at all levels are critical. Leaders must remember that people are undergoing a traumatic transition and need guidance.

Careful consideration and attention to detail are essential, along with a reasonable budget and the involvement of IT professionals early in the process.

Remember that surprises are for birthdays — not for after the merger!

Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.

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