Mergers – getting IT right

While IT is rarely a deal-breaker in any corporate merger, ignoring it can have a significant impact on any increased value that the merger can release. In this article, Julian Boardman-Weston and Sue Barker argue that any merger-driven IT strategy should be thought out and proactive from the outset.

When law firms consider merging, everything is on the agenda. If IT issues are not considered properly, they can at worst derail a merger and at best prevent some of the intended benefits from being realised. Even where IT is not going to present any fundamental problems there can still be an amazing amount of work to do to set up the new firm so that it has working IT systems from day one, let alone to last it into the future.

There are two overriding principles which you should keep in mind when dealing with the IT aspects of any merger:

separate out for special treatment any IT issues which might make or break the merger.
develop quickly - before merger - a clear IT strategy for the new firm to guide those who have the job of integrating the systems.

With these in mind we will suggest a five stage process:

Stage 1: Create the IT merger team
Stage 2: Find the facts
Stage 3: Prioritise the issues
Stage 4: Create a strategy and a plan for the newly merged firm
Stage 5: Implement

Separate out any IT issues which might make or break the merger

Not often will IT issues be sufficient by themselves to put a law firm merger in jeopardy. But if yours is one of those cases, you certainly need to know about it as soon as possible.

Many of the critical issues in merger negotiations will have nothing to do with IT. Some might be obstacles in principle to the merger. Others might lurk beneath the surface waiting to reveal themselves in the new firm once the merger has taken place. A common non-IT example which can fall into either of those categories is the role of individual equity partners - who can vote against the merger or seem to go along with it but walk out of the newly merged firm. To approach the pre-merger investigation and negotiations without identifying all these critical issues is a sure recipe for trouble. There are some examples of IT specific critical issues in Box 1: The amber light. No doubt you can think of others.

Box 1
The amber light:
Some IT obstacles big enough to derail a merger:

serious under-depreciation of IT assets requiring a major write-off

onerous IT contracts with long periods to run and which will be costly to cancel

looming replacement costs for out-of-date major IT systems

costly IT white elephants which cannot be stopped without upsetting influential equity partners who sponsored them

equity partner unwillingness to change working practices in areas which need to be more highly computerised for business reasons

senior IT staff who are unsuitable but who cannot be moved because of special relationships with equity partners

bad will with major clients who have suffered from the firm’s IT unreliability

seriously different IT cultures in the two firms - for example: where one is keen to invest in IT and has a low tolerance for unreliability but the other saves on IT and puts up with unreliability

big IT ambitions coupled with an unwillingness to pay for them - and where after merger those from the other firm will get the blame for the resulting disappointment

These ‘make or break’ issues must be dealt with quite differently from all the other IT tasks and queries which the merger throws up. The critical IT issues need to be flagged up for whoever is conducting the high-level merger negotiations. Everything else to do with IT should be the task of a dedicated IT merger team. It will get you in no end of a mess if the critical issues are left for the IT merger team to discover when they think all the points of principle have been resolved and they are integrating the two firms’ systems - like biting on unexpected sixpences in a Christmas pudding.

Conversely there is no way that you want your merger negotiations to be bogged down with a vast number of IT integration issues. These may be knotty problems to solve, requiring a good deal of work, but they should be delegated to a team set up for the purpose.

Develop a clear IT strategy for the new firm

It is vital not to allow the new firm’s IT future to be constrained for years by a series of ad hoc decisions about suppliers and technologies made under the time pressure of the merger. The way to prevent this is to develop as good an IT strategy as you can before you are faced with choosing suppliers, placing contracts and hiring and firing senior IT staff - and this means doing it before the merger is sealed.

You might think that developing an IT strategy is a lengthy process and not feasible in the time available. This may be so if you normally adopt a spacious and detailed approach to IT strategy but are acting under tight time constraints in the proposed merger. However you might be able to develop a ‘good enough’ strategy much more quickly than you think. In many firms, a week of intensive work should be more than enough time to do it. Yes, in a firm with many offices, the job is bigger - but you will have more resources and should be thoroughly up to speed on what is happening in IT in the pre-merger firms.

You really ought not to be merging at all if you are doing it in such a rush that you cannot think properly through the implications for the newly merged firm. It will be a poor excuse to say “Sorry we have got in such a mess but we didn’t have time to think about it”.

Beyond the preliminaries

Stage 1: Create the IT merger team

As soon as the merger looks to be more than wishful thinking, you should set up a team to deal with the IT aspects. Who should be on this team depends on the size of the firm and the complexity of the merger. In anything other than the small firm it should include the senior IT manager or director, a senior person from any practice group which depends critically on IT, as well as enough IT people and other specialists to do the necessary legwork. In many mergers it will be wise to include someone from finance (because the team is bound to need budgets) and the managing partner or another senior person who knows what is happening in the merger negotiations. If you are going to employ consultants then one of them should be on the team too.

In the early days each firm will have its own team but they will soon need to be in contact. As things progress they will need to change from people representing their own old firms to become a single team focussed on the interests of the new firm.

Stage 2: Find the facts

Both for the purposes of negotiation and to form a firm foundation for any planning, both firms need to have a clear idea of their own and the other’s existing IT. In most cases each firm will start by preparing a summary of its own. This will need to be passed to the other side. Usually you will want to check out the other firm’s IT for yourself. This is not mainly because they might pull the wool over your eyes, although this must happen from time to time. It is because you will see things which are invisible to the other firm because they seem normal but which might be significant to you. For example, different firms have very different ideas of the level of network reliability which they consider normal.

Be systematic. It is best to have a check list on which to base your evaluation. It is easy to concentrate on hardware, software and infrastructure but it is vitally important to look also at softer assets - such as the IT staff, any notable IT successes and failings, IT skills of legal and support staff and so on. There is an example skeleton checklist in Box 2: What to look for. It may be necessary to get in outside help if you need more hands on deck to do this work.

Box 2
What to look for

The existing IT infrastructure
what computer systems do they have?
how old is it and how long will it last before it has to be replaced?
how well does it work?
how well does it support what the firm is doing?
is it paid for or are there significant liabilities attached to it?

The existing IT staff
what is their capability in terms of technical and legal business understanding?
how experienced are they?
are they well trained or is a significant training obligation about to arise?
how suitable are they to run the merged firm’s systems?

The existing IT arrangements
is there a lurking need for major IT investment?
are there any onerous contracts?
are IT systems under-depreciated?
does the past conceal worn-out technology or expensive IT white elephants?
are the IT suppliers / consultants / external support organisations competent and performing properly?
are there any ongoing IT projects and commitments?

The existing IT culture and values
on the IT spectrum (from low tech to high tech) where does each firm appear?
is IT critical to any particular parts of the business?

Stage 3: Prioritise the issues

First, make sure that any ‘make or break’ issues are passed to those progressing the high level merger negotiations. Then set the IT merger team to work on the rest of the job. There is not space here to deal with everything but their first tasks should be:

identify the process for developing an IT strategy for the new firm
work out and agree with senior management a project plan showing
what needs to be done for the merged firm to have working IT systems from day one
how long it will take
who will do each part of the job - including identification of suppliers, consultants and contractors
what it will cost

Stage 4: Develop an IT strategy and a detailed plan for the merged firm

The merged firm must develop a picture of what its IT system should look like rather than following the line of least resistance by cobbling the various existing IT systems together. The task is to create:

The IT strategy: what the merged firm will require from its IT in order to support its intended business activities.
A detailed plan to carry its IT strategy into effect.

It is important to see these as two separate tasks. The first is big picture stuff and needs to involve those who have a clear grasp on what the new firm will be like and what it will be doing. Input will be needed from the intended Managing Partner or whomever else is best placed to speak with authority about the new firm’s business plans. Inevitably things will not be cut and dried and will develop during the course of the merger discussions. But it is a complete waste of time for an IT strategy to be developed if it is based on a false picture of the new business. Only those who are steering the merger can paint the true picture.

Both the IT strategy and plan will need to consider as a minimum each of the four areas evaluated in stage 2: IT infrastructure, IT people, IT arrangements (particularly with contractors and suppliers) and IT culture and values. You do not have to try to spell out in advance of the merger everything that needs to be done but action will be required in some or all of these areas. This needs to be recognised and planned.

It may be convenient to divide the plan into two parts - up to merger and post-merger. The first will deal with survival and concentrate on the main IT systems and resources. In most firms this will mean joining the computer and voice networks, setting up an effective email system and ensuring that file opening, time recording and billing can take place. Key IT personnel need to be identified and appointed. IT support needs to be put in place.

The post merger part of the plan will set out how the firm is to implement its IT strategy. This may involve major systems replacements after a thorough investigation of alternatives or designing and setting up e-commerce facilities - or any number of things which the firm knows it wants to do as high priorities but cannot rush into at the time of merger.

Stage 5: Implementation

Obviously the tasks are different in every merger. Once you have an IT strategy for the new firm and an IT plan which is both clear and agreed, it all comes down to effective project management and a great deal of hard work. Most firms understand hard work very well but project management skills sometimes need improving. If this applies to you why not consider some more project management training for one of your senior IT people. You will get the benefit from it whenever you do a major IT project, not just in a merger.

Getting a grip on IT early

Taking a firm grip on IT early in the merger process is essential. It allows you to identify any critical IT issues while there is time to resolve them. Also it gives a dedicated IT team the maximum time to get their work done.

This maximises the possibility that the merger will succeed and minimises the chance of IT’s causing serious disruption either to the merger negotiations or to the operations of the newly merged firm.

julian@sherwoodpsfconsulting.com
srb@computercounsel.co.uk