One of the many decisions made during the course of completing a merger or acquisition involves IT managed services arrangements for the combined organization. The “obvious” conclusion would seem to be wrapping the new operations into the acquirer’s existing service arrangement. But this recent experience from our Managed Services work with one client illustrates why a more thoughtful evaluation process could be beneficial—and could be a key to helping the evolving organization successfully integrate acquired firms.
Several years ago, one of our private equity clients engaged us to provide diligence on the acquisition of a $100 million company that was being spun out of a large conglomerate. Our team provided operational and IT due diligence on NewCo during the deal’s early stages, along with substantial carve-out experience and a track record for helping similar organizations become successful independent businesses. After our consulting team successfully executed the IT separation, our Managed Services team stepped in to run NewCo’s IT operations on an ongoing basis.
Shortly after the successful carve-out, NewCo was sold to a large multinational company with aggressive growth and acquisition goals that included an average of three to four deals per year. We met the acquirer during the diligence process, and its initial reaction was that IT was clearly running well under our Managed Services management. Accordingly, the acquirer (ParentCo) asked us to continue running IT operations as well as selected aspects of its own IT environment.
Over time, ParentCo experienced the Managed Services team’s focus on execution and flexibility – a stark contrast to the inflexibility of the large outsourcing partner that provides support services across much of the rest of the company. Eventually, ParentCo turned to West Monroe for assistance in managing US data center and infrastructure operations for its fast-evolving operations as it acquired more and more companies. Our blended team of M&A, Technology Infrastructure, and Managed Services professionals helped ParentCo achieve a simplified cost structure and a more flexible IT environment. As each additional acquisition closes, our Managed Services team on-boards the acquired company’s existing IT environment while simultaneously working with ParentCo’s architecture team to consolidate services and applications where appropriate. Today, we share with our client a common goal to provide high quality, responsive, and flexible IT operational support to the business that creates exceptional value.
The lesson here is this…
In a merger and acquisition situation, you will be evaluating the current managed services arrangement(s) in place and making decisions about which provider(s) to retain for the combined organization going forward. It is critical to make such decisions with a keen eye on business objectives—and not just the cost.
This client recognized that the most effective and beneficial outsourcing relationship is one focused on creating value. Whether the organization is addressing routine maintenance and data center outages or providing transitions services for large acquisitions, the key to establishing and maintaining IT infrastructure that enables its growth strategy is flexibility to respond to the organization’s rapidly changing environment and agility to react to the speed integrations often require.
Will your IT outsourcing arrangements meet the goals of your merged organization?
When evaluating an outsourcing provider, here are some useful questions to ask to make sure an arrangement is well aligned with transaction goals:
- Is your outsourcer staffed with “athletes” who can quickly assess a newly acquired environment and on-board it quickly into your procedures and processes?
- Has your outsourcing partner demonstrated an ability to react quickly, focusing first on understanding the situation before discussing changes to contracts?
- Does your outsourcing partner have experience with larger clients so you don’t risk outgrowing them?
- Can your outsourcer focus on helping you achieve desired cost synergies – even if that requires them to staff up at close and on-boarding and then ramp down as systems are consolidated?
- Does your outsourcer have a consulting arm that can successfully execute large, complex projects?
- Can you outsourcer adapt to flexible to the changing business needs?
For more information about West Monroe's Managed Services practice, please contact us.