Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Mergers: an IT director's nightmare

AGENDA Viewpoint

Integrating IT systems between companies can make or break an acquisition, writes Homan Haghighi

IT MUST have been an IT director who coined the phrase: 'When you're up to your neck in alligators it's hard to remember you were supposed to be draining the swamp.' For they are faced with this dilemma in the construction industry as they struggle to come to terms with the frequency of mergers involving major players.

To achieve the value expected by today's investors, and in response to current economic conditions, construction companies have increasingly turned to mergers and acquisitions. Recent examples include Vallehermoso's proposed reverse merger with Sacyr and Keller's acquisition of McKinney Drilling.

The market expects substantially improved results and synergy savings from mergers - but the delivery of these improvements has proved problematic.

Many have struggled to achieve promised savings because information on combined costs, staff numbers and business processes has been inconsistent and insufficient.

And if underlying profitability drops off because directors cannot obtain or understand consolidated management information, then the task of meeting the market's expectations becomes unachievable.

Consolidating IT systems post-merger is difficult in the best of circumstances. Incompatible technology platforms, inconsistent data structures and definitions, and duplication of application software and suppliers can all put a spanner in the works.

Unless the acquiring company is already set up with scaleable, integrated, standard software solutions, which is not typically the case, then the combined company can face one to two years of severe disruption to service standards.

So how can a construction company pass these many challenges unscathed?

The strategy adopted must make existing facilities work in the short term, in whatever fashion, and then drive out the efficiencies through benchmarking, identification and roll-out of best practice and consolidation of the infrastructure.

However, there is always the chance that, by the time the IT department has done this, the board of directors may have found another take-over target.

Consolidation will continue to be a feature of the upper end of the construction industry for the foreseeable future. Some of these moves will succeed and generate superior shareholder value, but others will not. Those that do will have successfully dealt with the post-integration operational and IT issues.

The lessons are therefore threefold. As the board considers acquisition targets they must look at the target company's IT infrastructure and ascertain how it will support or hinder the achievement of promised gains in shareholder value.

They need to examine if their own IT team and infrastructure is sufficiently robust to cope. IT management, when considering strategy, must make sure that the applications and the infrastructure can support short-notice step increases in demand and are not a constraint on corporate activity.

Finally, when it comes to integration management, large-scale ideas should be suspended while consummating a merger until the practical issues of connectivity and consistent, reliable, consolidated management information are dealt with.

Homan Haghighi is head of business development at Compass Management Consulting