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Top M&A pain points: Technology, followed by people 

By Neil Amato 
November 18 2016

Southwest Airlines’ acquisition of smaller US carrier AirTran was first proposed in 2010. The deal closed in 2011, and the last AirTran flight was in 2014. The technological merging of reservation systems continued far longer.

Southwest’s most recent annual report, in early 2016, said the airline continued to work on implementation of a reservation system that had to be revamped when Southwest, which had previously flown domestic routes only, took over AirTran’s international routes. The company said a single, new reservation system for international and domestic travel will be implemented in 2017.

That sort of challenge is typical after mergers and acquisitions, according to a Robert Half survey of US CFOs. Technology and business systems are the most difficult part of integration during a merger or acquisition, slightly ahead of integrating employees and corporate culture, according to the survey of 2,200 finance chiefs.

The CFOs were asked about the biggest mistakes and the most difficult areas to integrate in M&A deals. For both questions, the top choice was business systems and technology, followed by employees and corporate culture. The less serious merger concerns were, in order, budgets and finances, business models, and real estate.

Mark Biersmith, CPA, CGMA, a veteran of corporate M&A, said that, in general, only one company’s enterprise resource planning system survives, assuming at least one of the systems can handle the needs of the combined entity. If neither system will suffice, Biersmith said, a new system will need to be chosen, which slows down the merger.

Either way, “a large portion of data will need to be converted, and employees (must be) trained on the alternative system,” Biersmith said.

Then there is the not-so-delicate matter of merging workers. In many deals, some will lose jobs, others will take a job elsewhere before being let go, and others will be able to continue working for the new company. Even that third group must adapt to a new culture and potentially new job duties.

But none of these workers knows what will happen when the deal is first announced.

“People are scared to death,” Biersmith said. “There’s insecurity about who might make it or who might not.”

Biersmith said HR departments can play a vital role in the integration of people by being open to workers about the future. “What you need to do is make sure you’re speaking the truth,” he said. “Otherwise, you lose trust, and the foundation starts breaking down.”

Deals become more complicated, of course, when they are across country borders. Different accounting standards and labour laws have an effect on how systems and people are integrated in international deals, said Aaron Saito, CPA, CGMA, M&A controller at Intel Corp.

Robert Half advises organisations to give themselves a head start on merger activities. Other advice includes investing in training, not just for systems but for softer topics such as adapting to change and scheduling check-ins with staff to ensure alignment.

“The time, complexity, and layers involved in mergers and acquisitions are often more intense and cumbersome than anticipated,” Tim Hird, executive director of Robert Half Management Resources, said in a news release. “Integrating business systems, for example, will not only affect technology platforms but also compliance, internal controls, payroll, and risk management. Preparing for issues well in advance can ease the transition.”

Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.

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