What is the Weak Link in Any M&A-led Transformation Programme?

By Henry Umney, CEO, ClusterSeven

 In the financial and banking sector, M&A activity is expected to be healthy, due to disposal of non-core businesses by global banks, potential relaxation of regulation in the US, and the European Central Bank encouraging cross-border diversification and consolidation for value creation.  

 Strategically, M&A offers a great opportunity to organisations, with the potential of propelling some banks and financial institutions to top positions in the industry. This said, for organisations to truly take advantage of M&A scenarios, it’s crucial that from the word go, the new entity is able to demonstrate to and convince the regulators and the market that they are agile, effective and well-managed businesses. The regulatory deadlines are stringent and carry huge non-compliance penalties, which have the potential to inflict chaos and havoc for the new entity in the market. 

Extricating businesses

Organisations involved in a M&A need to disentangle processes from their original environment to migrate them to the new entity so that the merged business is operational from day one. For instance, traders need to connect to the new entity’s systems and market data feeds on the very first day of the cross-over so that their trading activity is not compromised.

However, there are many technology-related operational challenges to divesting and merging entities, including poor IT integration, data amalgamation, compliance and regulations and the rampant use of the Microsoft Excel spreadsheet. In fact, the impact of the spreadsheet is often under-estimated, which threatens the success of these highly strategic, M&A-driven transformational initiatives.

The financial controls that are in operation in organisations are spread across multiple enterprise systems and a multitude of critical spreadsheets that span the entire business. Most organisations understand the importance of extricating the enterprise systems and connecting them to the new environment in a M&A scenario. However, there are also a number of complex, business-critical processes that reside in intricately connected spreadsheets, that organisations don’t always have visibility and indeed an understanding of. This makes securely disentangling and migrating key processes and financial controls to the new entity problematic, risky and challenging.

Ensuring timely knowledge transfer of financial controls and business processes is yet another challenge that organisations undergoing an M&A situation face. As companies amalgamate, organisations make significant cost savings through combining processes and merging personnel roles, frequently resulting in employees departing the organisation. To suitably transfer the knowledge from the acquired or merging entity, organisations need to have a full understanding of the complex critical spreadsheets that are relied upon for financial control, information on the individuals who control and manage those processes, their integrity and where they exist in the business.

Manually separating processes costly and error-ridden

In the first instance, many organisations attempt a manual approach to understanding the spreadsheet landscape and the complex interlinkages across the environment in order to extricate businesses. It rarely works – the process is complicated, time-consuming, costly in man-power, error-ridden and with stringent deadlines to provide documentary evidence to authorities, it is commonly wasted effort.

On the other hand, technology enables the merging or acquired entity to understand its business processes, identify the individuals who are applying the controls and put automation around those procedures. This also reduces the key man dependency and ensures the necessary knowledge transfer to the new organisation.

Scottish Widows Investment Partnership (SWIP) separates from Lloyds Banking Group – a case study

The disentangling of the Scottish Widows Investment Partnership (SWIP) from Lloyds Banking Group to Aberdeen Asset Management in 2014 is a prime example of the value of a technology-driven approach to M&A-led operational transformation.

Following its acquisition, SWIP needed to separate its business from Lloyds so that the necessary and critical processes could be migrated to Aberdeen Asset Management. For example, where certain processes relied on market data feeds that were owned by Lloyds, or had linkages to systems owned by Lloyds.

Due to the number of intricately spreadsheets across the vast spreadsheet landscape and the complexities of the business processes residing in this environment at SWIP, manually understanding the lay of the land was impossible. So, by utilising technology, SWIP was able to inventory the spreadsheet landscape, identify the business-critical processes, understand them and pinpoint the files that required remediation. Simultaneously, the technology helped expose the data lineage for all the individual files, clearly revealing their data sources and relationships with other spreadsheets. SWIP was able to securely migrate the relevant business processes to Aberdeen Asset Management and where necessary decommission the redundant processes.

Paying heed to role of the spreadsheet is prudent

In any M&A initiative, there is always a substantial amount of work related to complex, business-critical processes that reside in spreadsheets and the dependencies of such processes on enterprise systems and vice versa.

Technology offers a fail-safe and automated mechanism – including everything from identifying and understanding the processes, establishing the data linkages across the spreadsheet landscape through to remediation, migration and decommissioning. Teams that prudently adopt a technology-led approach to drive M&A-led operational transformation initiatives, find it extremely constructive and beneficial to the business. It mitigates the risks, minimises the disturbances that separating financial controls and processes can cause for the new entity and gives the organisation the best possible start from market, regulatory and financial standpoints.

About the author

Henry joined ClusterSeven in 2006 and for over 10 years was responsible for the commercial operations of ClusterSeven, overseeing globally all Sales and Client activity as well as Partner engagements. In July 2017, he was appointed Interim CEO and is strongly positioned to take the business forward. He brings over 20 years’ experience and expertise from the financial service and technology sectors. Prior to ClusterSeven, he held the position of sales director in Microgen, London and various sales management positions in AFA Systems and DART, both in the UK and Asia.

Website: http://clusterseven.com/

Twitter: @ClusterSeven