Reducing Risks of Mergers & Acquisitions – An Overview of Major M&A Activities of 2016
Written by Vandana Mohanchandran
During 2016, mergers and acquisitions (M&A) were on the upswing among technology majors (such as Accenture, IBM, Cognizant, Microsoft and Wipro to name a few), with the end objective of deriving new business models, testing ideas, and installing new technologies.
Acquiring companies gives rise to several risks that must be cautiously evaluated and accounted for during due diligence. A company’s financials, litigation, intellectual property, and regulatory matters could signify possible impact on a business. Dissimilar security and IT operations practices between companies indicate a mounting concern for acquiring businesses, as both the companies may not have the same benchmarks for cybersecurity, data centers, asset management, and IT policies, thus exposing companies to data compromise, fines, and loss of trust with customers.
Major Technology M&As of 2016
Over the year, several big technology consulting firms were prompted to acquire design and strategy agencies. In November, Accenture and Cognizant both expanded their digital teams in Europe with the buyouts of Karmarama and Mirabeau, respectively. Accenture made the most acquisitions among its peers, buying six boutique creative agencies and software development firms in the second half of 2016 alone. IBM closely trailed Accenture by acquiring three creative design agencies over the span of just one week early in the year.
In October, Wipro took over cloud services specialist Appirio for US$500 M. The acquisition marked the largest acquisition related to cloud consulting services by an enterprise IT player. Appirio and Wipro coming together is expected to unlock transformational synergies in the applications space and help enterprises create new business models.
In May, CSC revealed plans to merge with HPE’s Enterprise Services unit to create an IT services giant with US$26 B in annual revenue. The combined entity serves 5,000 clients across 70 countries, and is expected to generate cost savings of more than US$1 B in the first year and US$1.5 B every year thereafter.
The most awaited acquisition of 2016 was the closing of Microsoft’s largest acquisition ever of LinkedIn for US$26.2 B. Microsoft has several product integrations planned, including LinkedIn identity and network with Microsoft Outlook and the Office suite; LinkedIn notifications within the Windows action center; and enabling LinkedIn members to draft resumes in Word to update profiles, and discover and apply to jobs on LinkedIn. Microsoft also plans to leverage LinkedIn to help users develop new skills online.
Reducing Risks during M&As
Regardless of the reason for M&A, it is crucial that decision makers take intangible aspects into account. The business of aligning the IT operations and security functions of two companies is a substantial operation, and there are two main universal goals during M&A transactions: finding synergies that drive cost reduction and understanding and containing the acquired company’s threat matrix.
Each M&A is exclusive, and in order to increase compliance and manage the records and information requires know-how and experience beyond the internal dimensions of the companies. Joint efforts inside the company and service providers that can deliver competences, methodologies, and technology tools will contribute in mitigating risks, improving and protecting assets, assisting in controlling or reducing costs, while helping create a fully functional and profitable organization as quickly as possible.
Whether the anticipated impacts of a merger or acquisition are positive or negative, it is important to remember that any change in a supplier’s business operation is a trigger to assess the situation at hand. To know more about the next major mergers or acquisitions across the IT-BPO space, subscribe to Supply WisdomSM. Contact us for more information or to get started with a free trial.