Overcoming Challenges of IT Integration in Cross-Border M&AsOvercoming Challenges of IT Integration in Cross-Border M&As

Cross-border M&As have become a staple of global commerce as companies seek ways to grow their markets. More than 8,500 cross-border M&As took place in 2023, according to Statista, with more than 40,000 such combinations completed since the beginning of the decade. These international mergers benefit companies in many ways, offering new markets, increased shareholder value and technological innovation.

Yet, when companies agree to combine, things get complicated, particularly when blending their IT and digital operations. To that end, organizations must carefully outline how they plan to merge their IT departments to overcome associated challenges and avoid expensive disruptions. Let's examine some ways to eliminate IT integration problems.

Strategic Pre-Merger IT Due Diligence

IT is the cornerstone of most multinational corporations. Determining how each merger participant will mesh its systems with the other is significant, particularly because 47% of M&A deals fail because of IT problems.

IT due diligence is paramount. Not only does the process help identify priorities and risks beforehand, but it also lets the acquiring company properly evaluate the technical capabilities of the firm it intends to purchase.

Here are some factors to consider.

IT Infrastructure Compatibility

Perform a comprehensive audit of the company's digital assets, including:

Analyze these assets for both the buyer and seller to identify any potential conflicts or integration challenges.

Data Migration Challenges

Discover, profile and cleanse the acquired company's data sources, including:

This ensures high data quality and paves the way to comply with regulations. Assess the compatibility of source and target data systems and map their data to ensure accurate data transfer and integration.

Hidden IT Costs

Many M&As fail to realize their full value due to unforeseen IT costs. They fail to factor in the following:

Assess these costs in advance to avoid financial setbacks later.

Cybersecurity

Data breaches cost businesses an average of $4.88 million in 2024, according to IBM. Poor security protocols in the firm to be acquired can cost the buyer financial loss, reputational damage and compliance issues. Thoroughly assess the target company's incident history, data management protocols, system vulnerabilities, potential cyber threats and vendor agreements.

Managing Compliance, Culture and Integration Costs

Cross-border M&As are subject to data privacy and compliance regulations that vary significantly across jurisdictions. When assessing an international merger, ensure there aren't any non-compliance risks and that the firm being acquired operates legitimately. Be aware of complex international data and privacy laws. Address any irregularities with a strong compliance strategy and retain expert legal counsel before signing the deal.

Ensuring regulation compliance involves:

Cultural Alignment

Consider Microsoft's 2014 purchase of Nokia, deemed to be one of the worst mergers ever. Factors such as Nokia's outdated technology and technological incompatibilities contributed to the failure. But there was another factor. The companies' respective IT teams couldn't overcome their cultural struggles.

In fact, cultural mismatch is one of the top reasons why M&As fail. One solution is to ensure that merger participants fully understand how their employees will work together well before any deal is signed, according to Michele Hamill, chief human resources officer at Jaggaer, a software company in Durham, N.C.

Failing to do so is costly. According to an Ernst Young study in 2018, 47% of employees quit due to poor post-merger integration management and misalignment of vision, cultures, business processes, technologies and work/communication styles, to mention a few.

That's why a pre-deal strategy that prevents cultural conflicts and promotes healthy collaboration among both organizations' employees, including IT teams, is crucial. The result is cultural synergy and employee retention.

Integration Costs

Post-merger IT integration can be costly and spiral quickly if teams overlook hidden expenses and unforeseen roadblocks, leading to budget overruns and delayed timelines. In addition to due diligence, here's how to achieve cost-effective IT integration:

Integrating systems and processes effectively allows organizations to build a strong foundation for future acquisitions, providing the organization with quicker integrations, faster digital readiness and reduced integration costs.

IT Integration Planning

A successful IT integration post-M&A depends upon a well-defined strategy with a systematic approach to planning and execution. It acts as a roadmap to unite the cultures, core operations, business processes, technologies and key personnel of both companies.

Use the following steps as a checklist to develop and execute an effective IT integration plan:

Navigating the path toward integrating IT in cross-border M&As is like walking on thin ice or, more dangerously, through a minefield. A misstep, and an organization is done. Difficult tradeoffs cloud every step, such as cost savings versus innovation, speed versus security, and retention versus layoffs.

Be prepared to take the heat for technology gaps, compliance horrors, cybersecurity potholes, cultural voids, talent exodus and budgeting nightmares. Address critical issues before the merger's deadline. If unaddressed, these challenges can quickly derail integration efforts, lower employee morale and erode value. An effective post-merger technology integration is crucial to maintain business leadership and competitiveness in a technology-led market.