Part Two: How Cloud Helps A Portfolio M&A Strategy

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Last week I published part one of this two-part blogpost on how cloud helps a merger and acquisitions (M&A) strategy for private equity firms, specifically known as a ‘buy and build’ approach. The post explained the various benefits of cloud technology throughout the M&A process.

This post will focus on the questions which need to be asked as a cloud strategy is created, alongside some common approaches to M&A using cloud technology.

Cloud Technology Approaches for Cloud M&A

The optimal approach to using cloud technology depends heavily on the expected outcome and level of integration between the organisations. Below is a selection of common ways that cloud technology can support that integration.

Prior to deciding the approach, asking key questions to help shape the strategy will ensure that the right approach is taken for the desired outcome.

Key questions to ask

Understanding the level of desired integration helps to shape an approach and prioritise a sequence of events. Key questions to ask include:

1. What is the outcome you’re driving towards with the integration?

2. How much integration is expected between the two organisations for the merger?

3. What layer of the technology stack are you expecting integration at first (e.g. data, system, application consolidation)?

A following set of questions around the level of cloud usage can dramatically change the integration strategy:

4. Is either organisation using cloud currently?

5. If cloud is being used, how mature is the cloud platform?

6. If both organisations are using cloud platforms, will consolidation make sense or a hybrid environment strategy with integration of key systems?

7. If cloud isn’t being used, is there any desire to use cloud technology in the future? — If so, can this merger be the conduit to cloud adoption?

The longer-term business strategy will also play a key part in what the target platform should look like. Consider the following questions as part of your strategy:

8. Are the overall business plan and growth drivers based on continual acquisitions?

9. Would creating a separate M&A technology platform make for easier integrations with the acquirer?

Using the M&A Activity to kick-start Cloud Adoption

If neither organisation has adopted cloud technology today and there is a desire to start the adoption, use the M&A activities as a conduit to start that process, effectively merging both the M&A process and the cloud adoption strategy.

Key considerations when using this approach:

· Complex IT estates could hinder integration progress. Consider whether it would be easier to focus on key systems and/or use a greenfield approach.

· If the business plan is to see growth through a serial acquisition strategy, then consider building out an M&A integration platform to support the integration of future acquisitions.

· Ensure there is clarity in what the integration approach will be, which layers of the technology stack will be integrated when and how far the integration will go. This will be key to measuring the value of each stage and ensuring success across the full roadmap.

Migrating onto a pre-existing Cloud Platform

A desire to consolidate to one target platform where one or both organisations have a mature cloud platform.

Key considerations when using this approach:

· Ensure a clearly defined target blueprint and understanding, especially for complex IT estates.

· The approach to be taken for the migration — Will it be a ‘Lift and shift’ of the entire estate (i.e. migrated over, as-is) followed by consolidation and integration, or a more measured approach with key systems integration?

· How value will be tracked as integration between existing estates can be complex. Ensure adequate planning with the necessary proof of concepts (PoCs) carried out where necessary.

Greenfield Environment

If both parties have complex IT estates and integration between them is difficult, consider a greenfield approach where a new cloud environment is developed to try and tackle the complexity. If designed correctly, the new environment can also help realise the inherent business benefits of cloud technology.

If executed correctly, this approach can realise significant benefits, both on time reduction and value:

A Private equity firm buyer cut its transitional service agreements period from 36 months down to 15 months by implementing a cloud-based greenfield IT system, creating more strategic freedom, and reducing costs in the process. — Sweetening Deal Digitisation M&A PoV, Accenture.

Key considerations when using this approach:

· What proportion of the estate will be migrated, and which key systems will be migrated as part of this?

· For key systems, consider SaaS based offerings and other software solutions with additional functionality.

· How will value be tracked using this approach and what are the key milestones?

· With an IT talent shortage, are the right people and/or partners in place to support the development?

M&A Integration Platform

If this acquisition is part of an overall continuous acquisition business strategy, consider building a cloud M&A integration platform which can de-risk integration and reduce integration times and for future acquisitions.

Key considerations when using this approach:

· Integration between the M&A platform and existing IT estate will play a critical part in the overall merger.

· If the existing IT estate is not on a cloud platform, consider a parallel cloud adoption track to help lower the complexity with integration across the different technology layers (i.e. data, systems, etc.).

· Capabilities for the M&A platform will need to be built out, supporting integration at different layers of the technology stack.

Hybrid (Multi-) Cloud Platform

Whilst not the best choice, if both parties have complex IT estates on the cloud and there is no desire for any level of integration other than data, consider joining the environments using network-level integration and support from a cross-environment management layer to manage the environments as a whole and gain operational efficiencies.

Key considerations:

· The value gained from this approach against the additional effort (and value) of more tightly integrating the organisations.

· Cloud environments often charge for outgoing data. Consider the charges for data transfer across environments.

Final Thoughts

‘Buy and build’ is becoming a more common strategy in the PE industry. Whilst it paints quite a nice picture of business growth, post-merger integration remains a significant business risk.

Cloud technology can help accelerate the integration and time to value for M&A activity. This must be thoughtfully executed to ensure shareholder value and de-risk existing and future acquisition activities. Consider technology early in the M&A process and ensure the necessary stakeholders are engaged and brought on early to maximise the chances of programme success.



CTO — Private Equity at Microsoft | Digital Transformation & Technology | Leadership & DEI | Tech Innovation

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Amit Sinha

CTO — Private Equity at Microsoft | Digital Transformation & Technology | Leadership & DEI | Tech Innovation