Sep. 23, 2016 | In Brief

ERP strategy and M&A deals: a necessary couple

Verizon acquires Yahoo: What does this merger mean for the market?

Yahoo recently joined Verizon’s ever-growing tech portfolio. Verizon’s acquisition of Yahoo will allow the major wireless carrier to become an impactful player in the digital media industry. As we consider the impact of this merger on the market, we should also consider a likely next step for Verizon: selection and implementation of an enterprise resource planning (ERP) strategy. M&A deals cannot be successful without consideration and execution of a successful ERP strategy. Managing the immense amount of data involved in a merger of this size and creating synergy across the large portfolio requires careful consideration.

How do ERP systems come into play in M&A deals?

ERP strategy is entirely dependent on several factors, to name a few:

  • Type of merger

  • Size of the firms

  • Industry

  • Existing systems

M&A strategies that best align with various ERP strategies

Portfolio companies operate as separate independent entities

In this scenario, a parent or holding company owns all of the portfolio companies. However, each portfolio company operates independently, allowing the company to use its own ERP system and maintain autonomy.Portfolio companies can control their own cash flows, operations and have the ability to leave existing systems in place.

This strategy is ideal for companies that will still operate independently; for example, a merger between two companies in completely different markets or a merger between companies with a large geographical barrier.

The recent merger proposal (which was ultimately shot down by the government) between Pfizer and Allergan is an example of this. Pfizer, an American company, had a bid to purchase Dublin-based Allergan in order to take advantage of Ireland’s “tax haven.” Because of the large geographical barrier and international differences, this merger could have implemented an autonomous ERP strategy in which both legacy ERP systems remained in place and the companies’ operations remained separate.

Portfolio companies do business separately but share functions across the business

Here, we return to our friends at Verizon and Yahoo. Market analysts and Verizon sources have suggested that Verizon will combine Yahoo with AOL, another Verizon portfolio acquisition. Together, AOL and Yahoo would share internet and digital advertising functions to operate together within the portfolio, driving Verizon further into the competitive digital advertising industry.

In this case, the best ERP strategy would involve separate ERP systems for the various business segments, such as digital advertising, but shared services across the entire portfolio. This strategy allows for different branches of the same company to independently control their own operations, while still allowing for maximized visibility into shared operations and cash flows thus reducing redundancies and increasing profitability. Verizon can independently control its wireless carrier and digital advertising functions, while still tracking portfolio operations to maximize efficiency and profitability.

Portfolio companies are fully integrated and operate under one system

Mergers that revolve around the ultimate goal of creating one super-company will likely look to implement a super-system to match. In these scenarios, the merged company utilizes one ERP system to house data and manage operations from all aspects of the business. For example, in the merger between Marriott and SPG, two companies plan to merge to become the world’s largest hospitality group—an exciting prospect for consultants everywhere. Similarly, the recently announced merger between Dell and EMC Corp. is the largest tech merger in history, resulting in tech super power Dell Technologies. One fully integrated system allows for easy reporting and monitoring of the company’s finances, operations, etc.

ERP Strategies

The following summarizes various ERP strategies and the corresponding M&A deals that would align with the ERP strategy:

Strategy

 Pros

Cons

Example

Portfolio companies operate as separate independent entities

Provides the most autonomy for portfolio companies

More difficult to monitor operations, more difficult to control cash flows and limits synergy across the portfolio

Pfizer and Allergan

Portfolio companies do business as separate companies but share certain business functions across the portfolio

Maximizes portfolio profitability, reduces redundancies and more control and visibility into operations and cash flows

Outputs from different systems are difficult to manage and integrate

Yahoo and Verizon

Portfolio companies are fully integrated and operate as one system

Easier reporting and monitoring and complete synergy across the portfolio

Integration and transformation to one single system is disruptive

Marriott and SPG; Dell and EMC Corp.

Conclusion

We’re all aware of the “glamorous” world of M&A deals. But behind the scenes, consultants are hard at work post-close making it all happen with ERP strategy roadmaps, software selection, and solution implementation. Pursuing an appropriate ERP strategy is essential for a successful M&A deal.  Without considering these ERP solutions and the corresponding business transformation, an M&A deal will likely be unsuccessful. 

If you are interested in discussing your organization's ERP strategy as it relates to your M&A strategy or overall business strategy, please contact us.

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