Merger Best Practice: Perform IT Asset Rationalization Earlier!

By Chris Vicknair

Director of Client Services, NPI

March 27, 2019

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If you’ve ever been through a merger, you know how daunting the execution can be. In every area of the business, it’s a lot of work to blend two companies into one. The merging of the two IT estates, what we call IT asset rationalization, is one of many challenges.

In most mergers, there is significant overlap in IT vendors. For those overlaps, the rationalization and merging of two separate contracts is neither a small nor easy job, and there are perils along the way.

We find that most organizations perform a high level review of the overlap as part of pre-merger due diligence. One outcome of this exercise is that IT leadership of both companies frequently realize that they don’t have the necessary information at the ready. Finding and assessing the information takes a lot of time. That’s the first clue that rationalizing the estates is going to demand greater-than-anticipated resource commitments.

Preliminary research pales in comparison to the effort it takes to dig in and get the vendors to agree to transfers, assignments, amended agreements, etc. – which usually has to happen by a CEO-mandated deadline. Most organizations start this journey trying to go it alone, then quickly realize that reinforcements are required.

Early IT Asset Rationalization Preparation and Execution Translates to Greater Cost Avoidance

NPI recommends starting as early as possible, and bringing in expert assistance from the get-go to assist with activities such as cataloging the vendor landscape and agreements, establishing a repeatable process to be performed vendor by vendor; maintaining a repository of artifacts; maintaining detailed real-time project status; and negotiating with vendors. Other important activities include:

  • Comparing licensing and cost-related terms of each entity’s agreements with key vendors (IBM, Microsoft, SAP, Oracle, Adobe, etc.) to identify gaps and establish contractual strengths/weaknesses that can be leveraged/eliminated as part of the negotiation
  • Perform price benchmark analysis of the agreements to determine if pricing is in line with fair market value targets
  • Estimate potential savings opportunities and anticipated costs (if any) based on a business-as-usual analysis of the existing agreements

The sooner you bring in experienced reinforcements, the greater the likelihood you’ll meet the deadline – and the more runway you have to negotiate with vendors.

Vendors View Mergers as Revenue Opportunities

Most vendor agreements aren’t assignable or transferrable without their permission. And most vendors want something in return for consent – more revenue, a longer commitment, a broader commitment, etc.

There are also some internal forces at work at the vendor sales rep level – typically someone is going to have to give up a customer. And the combined entity usually has a smaller footprint that the two individual entities. At best, there will now be a sharing of revenue across two reps – and less revenue, at that.

NPI recommends immediate escalation several layers up in the sales food chain within the vendor. It’s important to have access to someone in the vendor’s organization that will care more about the joined revenue than only their piece of the pie.

This also goes for global mergers. Regional sales teams will only get credit for sales in their region. They are likely to lose the account anyway, so the local sales rep will usually play hardball and offer no options for merging (and reducing) two contracts. In the event of global mergers, where contracts with one vendor may be scattered around the globe, NPI recommends escalating up the sales to the right level to provide correct-sized pricing for the new, combined entity.

NPI is well versed in these situations. Our Divestiture and Merger IT Asset Rationalization Services help companies perform all of this work, optimize costs and meet deadlines.