Opinion

The Role of Web Services in Mergers and Acquisitions

Web Services provides a cost-effective way for IT to help achieve corporate merger goals and to contribute significantly to fast, reliable merger synergies. A growing number of companies are using Web Services after a merger.

By Bob Anderson, Eric Stettler

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Determining if Web Services should be a key tool in your organizations arsenal of merger support capabilities is never an easy decision. Just as each M&A transaction is unique, the potential for Web Services varies depending on the overall strategy and the participating companies environments.

A.T. Kearney uses an integration framework to assess whether Web Services is a viable integration option in a merger. The framework is built on three screening criteria: strategic business rationale, business functionality rationale and integration environment rationale.

Framework

Strategic Business Rationale

What are the strategic business drivers behind a merger, and how do they affect IT? Our first criterion addresses these two questions, which significantly influence whether Web Services will be appropriate to support the integration of the two companies. The rationale for some mergers may have little impact on the IT function. For example, a U.S. company acquiring a European company to expand its geographic footprint may choose to leave the IT that supports Europe largely as is with only minor data integration. Or, a company acquiring an unrelated business to broaden its product or service portfolio may also leave the operations of the acquired company intact. In both cases, little to no IT integration activity is needed, thus reducing Web Services potential value.

Web Services becomes critical when the legacy environments of two companies are maintained or selectively replaced in the combined entity; Web Services forms the integration link between the two environments. While this approach may result in lower short-term cost savings, there are legitimate reasons to follow such a strategy. For example, critical capabilities may exist in the legacy systems of the two companies that are too costly to recreate but they provide a distinct competitive advantage to the combined entity. In such a case, a seamless integration layer becomes critical, and Web Services may be the best technology to support it.

Business Functionality Rationale

Information technology portfolios of merged companies can include thousands of IT systems; they are typically complex, maintenance-intensive, and high-cost environments. In such situations, the key decisions regarding whether to rationalize or integrate IT are evaluated at the business function level. Our second criterion helps answer the question, "Should the underlying systems (applications, data and infrastructure) for a business function be rationalized or integrated to maximize value?"

The answer typically depends on the intended benefits. For example, systems that support functions such as finance and HR are typically expected to generate improved scale efficiencies, which can best be achieved through rationalization of those systems. Such rationalization initiatives should be based on industry benchmarks and on a holistic analysis of the system portfolio to reduce the IT complexity and the associated costs.