Don't fear a merger it could be the defining moment of your career. Check it out:
(Lloyds List Via Thomson Dialog NewsEdge) IN RECENT months we have seen a real boom in merger and acquisition activity.
In the insurance industry Resolution's recent GBP3.6bn ($6.8bn) acquisition of Abbey's life operations immediately springs to mind, with the former also saying it is bracing itself for further consolidation in the closed life sector in coming months.
Many perceive the world of M'A to be rather glamorous, with sharp-suited lawyers and bankers signing multi-million deals. But once all the glitz and razzmatazz has subsided, and the bankers and lawyers have taken the fees and moved on to another project, what happens next?
Well, you can be sure that it will fall on the shoulders of someone, usually the chief financial officer, to deliver all the vast synergy benefits that were promised.
The heat is on to deliver savings against the odds. According to Deloitte between 50% and 70% of mergers fail to deliver shareholder value.
Speed is of the essence too. Accenture revealed that for an acquirer expecting to reap $500m in yearly cost savings from a transaction a mere one-month delay reduces the net present value of the deal by more than $150m assuming a 10% cost of capital.
It certainly sounds an almost impossible task, but should a merger really strike so much fear into the executive's heart? Not necessarily.
In fact forward-thinking chief financial officers in the insurance sector could actually view mergers as a golden opportunity not only to pro-gress the success of a company but also to make a name for themselves and delight their bosses. So the question is: 'How, exactly?'
In order to attain meaningful reporting information after a merger, the chief financial officer has to see how the new business is performing in order to develop financial and market results and appease stakeholders as they eagerly await information on the merger's success.
But, when two insurance companies of significant size come together, merging IT systems overnight is clearly impossible. A solution is needed that allows companies to integrate management information rapidly from disparate systems without the need for standardisation or invasive change to source systems.
It can be tempting to choose one company's system over the others, but this will only serve to alienate both customers and employees, according to analysts.
Moreover, any chief financial officer who attempts this will soon realise that rapid standardisation is almost impossible. There will always be diversity. It is more important to implement quickly a system that will give a cross-company perspective and so immediate benefit.
This is all very worthy, but what you need immediately is to understand the gross margins of all the product lines, channels and global accounts across the newly acquired entity. Switching off old systems can wait.
Clearly, any M'A in the insurance industry signals a time of upheaval within a company. But this is not the only time major changes will affect operations, so the merger provides an excellent opportunity to make sure any systems and processes to acquire data after the merger are flexible enough to cope in the future.
Therefore a solution that provides adaptability to business after the merger and market changes, such as competitor activity, reorganisation or market consolidation, is crucial.
Companies would do well to look to one of the largest mergers in recent years, Halifax and Bank of Scotland's venture to form HBOS where they chose a flexible data warehouse to get a consistent view of procurement data held in disparate systems.
The company was realistic enough to recognise integrating operations and IT systems from different divisions was a long-term endeavour.
But by implementing an iterative approach, taking the project in bite-sized chunks and using a data warehouse to sit above their underlying systems, business users were able to gain the necessary insight to drive significant cost savings. Above all, these savings were delivered quickly.
A merger or acquisition of any size presents significant challenges when it comes to integrating the disparate systems of two insurance companies. However, with the right approach, chief financial officers can make it the defining moment of their career.
Andy Hayler is founder and chief strategist of enterprise data warehousing and data management software company Kalido
Copyright 2006 Informa Martime Trade and Transport
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