With the exception of an initial public offering, nothing stirs management blood like a strategic acquisition. Months of clandestine meetings, endless planning sessions, secretive sessions on due diligence and weekends spent on the phone to bankers, lawyers and shareholders, all culminate in the inevitable announcement of a "win-win-win" for customers, a round of bullish calls to analysts, the tightly scripted press conference, and, of course, champagne all round. Lots of champagne.

But when mergers and acquisitions are analysed in the cold light of day, the picture - in most cases - makes uncomfortable viewing for almost everyone involved: CEOs and CIOs, financial chiefs and investors, employees, partners and customers. The ugly truth is that most M&As fail - and by almost every measure.

Numerous studies digging into transactions that have totalled between $1 and $4 trillion annually during the past decade - from deep academic research to qualitative surveys by well-connected consultancies - have come up with roughly the same figure: around 70% of M&As ultimately fail to create any incremental shareholder value. Which is, after all, the point.

A study by global management consultancy Hay Group, for example, which analysed over 200 major European M&As from 2003 onwards, revealed that a mere 9% of the business leaders who put their signatures on completion documents thought their deal "fully achieved its original objectives", and just 28% felt their acquisition created "significant new value".

Net losses

Indeed, in many cases the perception is the opposite. Studying acquisitions between 1992 and 2006, the Boston Consulting Group found that 58% of deals actually "destroyed value for the acquirer's shareholders", producing a net loss of 1.2% across all measured transactions. Not much of a loss, but far from the promised uptick that justified the purchase price.

Many factors are at play here: failure to assimilate business culture and human capital, mismatches of company structure and corporate governance, a strike price that was way too high and simply the mistake of falling for the wrong partner.

But fingers increasingly point to another key source, especially in industries which are largely driven by technology: the difficulties that surround the integration of complex, sprawling, incompatible IT infrastructures. 

That will not be news to most CIOs. Corporate M&A activity - as well as the merging and reshuffling of government departments and agencies - places intense pressure on their organisations.

Many have witnessed how the success or failure of an acquisition or a divestiture hinges on how well the associated technology environments can be integrated or split apart and how that will govern the time-scale, the cost and the likelihood of achieving the business's stated goals for the deal.

And that situation has only intensified in recent years as M&A activity in industries such as finance, automotive, travel and entertainment has occurred not just on a colossal scale but at a forced pace - with so-called "mega-mergers of necessity".

In those and numerous previous examples, the fundamentals remain the same for the CIO: that senior management typically fail to appreciate the scale and the level of disruption caused by smashing together two IT-enabled business infrastructures.

Left out of the picture

Just sample the comments from CIOs interviewed for a poll conducted by Bloor Research for data integration software specialist Informatica: "IT was identified as important at the outset but was only a contributory strategic consideration rather than key and essential when things got going";  "the acquiring company didn't do the required due diligence [so that] they really understood the IT integration issues or the complexity of the estate"; "IT should have had more involvement it is now the scapegoat for delayed completion".

That is perhaps the single most important point about the relationship between the business and CIOs when an M&A looms: IT is simply not engaging in the due diligence, the costing and the planning phases of acquisitions or divestitures early enough, fully enough or consistently enough.

According to the Bloor study of 56 large organsiations, only 21% of CIOs feel that the consideration of IT issues had been given appropriate weight in the decision to merge or acquire.

 "It is typical that one of the immediate benefits (or claimed benefits) of M&A activity is the reduction of costs in the back office: as a result of combining the systems of the two participating companies there should be significant savings in both infrastructure and headcount," highlights Philip Howard, research director at Bloor. But 2 minus 1 does not equal 1.

"A significant part of the reason why M&A activity fails to create value is precisely because it is much more difficult to achieve these back office savings than most business people normally realise: because this is dependent  on the ability to integrate the two companies from an IT perspective."

So until IT can be integrated effectively then many core business processes have little chance of coming together to deliver savings. As Howard says: "This is one of those 'things that you don't know you don't know' situations, so it may never occur to the business people involved that they should consult IT about the complexities of integration and the likely time-scales involved."

Involving the CIO

As a result, business people tend to underestimate the work involved, sometimes significantly. And they don't give CIOs adequate or early enough visibility into the deal to adjust that view. That can result in a dramatic set of events: the time-scale for payback can be woefully optimistic and the price for the acquisition set unjustifiably high.

The issue is not that board members fail to initially inform CIOs, it is that they became distanced from the deal as it moves towards completion. "The numbers paint a bleak picture of business leaders' understanding of the time and complexity requirements of integrating vast amounts of data and applications," says Howard. "Not understanding the requirements of integrating the multiple businesses can swiftly deem those mergers to failure."

The positive news is that these issues are becoming recognised by  CEOs and CFOs, who are heeding the warning: if you don't get the IT right - and empower the CIO to do so - then failure rates will persist. That epiphany is certainly evident in the banking sector, where several of the mega-mergers - perhaps because of their forced pace - have been guided as much by the requirement to get the distressed asset's IT back in operation as financial arguments.

Several CIOs approached for this article said that they had had a deciding vote on multi-billion dollar acquisitions after spending just a few days assessing a particular IT integration challenge.

Clear for take-off

But it is not just the banking industry that has had to move fast and effectively. Take an example from the airline industry: UK-based bmi's acquisition of British Mediterranean Airways (BMED) from British Airways. In acquiring BMED in February 2007, bmi increased its network by 17 destinations in an additional 16 countries.

The terms of the deal were such that bmi had to integrate these new routes and begin flying them as bmi on 28 October 2007. Services partner Fujitsu played an important role in ensuring that all work was completed to deadline such that, when the last aeroplane touched the ground on 28 October as a BMED flight, it took off again as a bmi flight.

That nine-month schedule included: designing and building a new desktop standard and creating new users and mail accounts; migrating servers and data, including BMED data held in SAP; decommissioning a SAN at BMED's headquarters and moving, rebuilding and testing it at bmi's headquarters; and staffing a technical support centre over the cutover at bmi headquarters to advise and assist both field engineers and the bmi support functions.

In many such deals, integration efforts - often handled by IT service partners - need to be tracking, managing and coordinating, and that requires a single point of accountability and governance.

"By its very nature M&A activity is a somewhat untidy business - there are literally hundreds of factors that need to be managed. So it is critical that all aspects are captured within a well-tuned model, creating a single governance structure," says Anne Stokes, business unit director for transportation, manufacturing and services at Fujitsu.

Its solution to this complexity is its proven Service Aggregator model, which brings together all of the conflicting facets and acts as a focal point for dealing with all risk, complexity and any potential pitfalls.

M&A-ready architecture

In addition to such models, a number of technology approaches are easing the burden of M&A execution and increasing the chances of success. Virtualisation is enabling acquired business services environments to be virtualised on the acquiring company's infrastructure.

Service oriented architecture has also played a role by breaking down applications into transportable web services. In a similar, but detached mode, applications delivered as a service over the web have also proved to be a useful alternative to integrating in-house systems (see our Case Study on the merger between Thomson and Reuters).

Cloud computing is promising to take that a step further, helping to meet organisations' M&A goals by providing on-demand services that merging organisations can hook into before, during and after their marriage.

As that underlines, the right architecture and technology choices may enable organisations to more successfully fulfil their M&A ambitions. But the fundamentals still stand. As Bloor's Philip Howard points out, when it comes to M&A IT integration, "CIOs are still struggling against huge odds."

What is appearing on the horizon is a business and CIO understanding of how to play a smarter M&A hand - and one that ensures their deal ends up in the success column.

For more, see our Case Study on the merger between Thomson and Reuters; Dr Hüseyin Tanriverdi's expert view on why M&As need CIO involvement; and log in to our Members' Area to download our M&A Data Feed.

Photography: Nato Welton