If you have a strategy in place to sell your automotive aftermarket business in the future, your approach to technology cannot be overlooked.
An analysis by McKinsey and Company in 2011 rings as true today as it did then, even though it was a lifetime ago in technology terms. How long ago? Blackberry was still very much part of the conversation, even though the business was in a tailspin.
“Many mergers don’t live up to expectations, because they stumble on the integration of technology and operations. But a well-planned strategy for IT integration can help mergers succeed,” led off the authors Hugo Sarrazin and Andy West.
An unrelated study laid as much as 75% of acquisition failures at the feet of failed IT integration. This would seem an entirely obvious point, but one that can get shunted aside as organization ownership looks for ways to prepare a business for sale, and bolster the balance sheet.
And yet technology, more than the inventory value of the parts on the shelf, the building that houses it, or the land it sits on, can determine the successful sale and acquisition. Unless it is a pure asset play by the buyer—something that is seldom desirable by the seller—nothing more than the ease of integration that will determine the perceived value of the business to be acquired. And that’s what will build the value of the acquisition.
And yet it is often still overlooked, as corporate suitors study organization charts and try to determine how important to the operation the current ownership is, or is not.
“In our work on postmerger management, we have found that 50 to 60 percent of the initiatives intended to capture synergies are strongly related to IT, but most IT issues are not fully addressed during due diligence or the early stages of postmerger planning,” said Sarrazin and West.
To be sure, acquisitions can fail for many reasons including being ill-conceived in the first place, but more often than not it is due to a blind spot on the part of the acquiring company.
One that can’t be counted on them to overlook though is the area of IT infrastructure.
If you are running a 30-year-old management system custom built and shored up over time with a variety of IT code fixes and bolt on, you aren’t likely to be able to declare this easy to integrate with a purchasing company’s systems.
It doesn’t mean you can’t do a deal, but it will knock some value off.
Here are a few points to consider, because they will be doing the same:
- What software licenses does your company have and how critical are they to the company’s core business?
- Has you company historically incorporated open source software into its applications, and if so does the company have any open source software issues?
- What software is critical to the company’s operations, and does the company have appropriate licenses for the IP of that software.
- Does the company’s usage of that software comply with use limitations or other restrictions?
- Can you supply requests for architectural documentation for the system structure and applications
- Can you identify who wrote the original base software and undertake a full code review/systems audit
Software assets continue to become an increasing part of a companies valuation, buyers should understand the technical debt embedded within the code that they are acquiring. Prior to acquiring a company, buyers may insist on conducting a technical debt assessment as part of the due diligence process, as in some cases, a buyer may discover that the two organizations systems are so incompatible, that it may be too costly to consolidate them.
In these situations, its important to take a longer view by allowing both companies to continue to function with their existing systems, whilst developing a custom specification that meets the needs of the new organization.
To end on a positive, if a poorly organized, hard to integrate IT approach can harm the ease and value of an acquisition, the opposite is also true.
With a clearly easy-to-integrate platform, an acquirer might see more value in your business; and if the acquisition terms terms include your staying on for a time, that period will also be more rewarding.
And while not the focus here, ensuring that you have strong technology in place will also help to build your business, and it’s value, in many other ways too.