The current economic crisis has resulted in a consolidation cycle in the financial services sector the likes of which has never been seen before. Shotgun marriages of financial institutions have been arranged over weekends, making the traditional hyper-speed courtship of the mergers, acquisitions and divestitures (MAD) deals appear slow.
In contrast, uncharacteristic declines in corporate equity industry-wide also created unique “target-rich” environment for MAD activity. Well-positioned firms are now engaging in MAD with renewed interest and speed.
Accurate, reliable information is critical to the ultimate financial success of MAD transactions.
IT executives play a pivotal role in providing the mechanism for delivering critical information during the volatile MAD process. Many savvy CIOs view these events as opportunities to enhance staff and IT assets and increase business agility for the future transactions.
This is the first in a series of three articles that explores the finer nuances and primary drivers of information as a MAD catalyst.
Information as a MAD Catalyst
Timely and accurate information is required to enable the four primary drivers of enterprise value in MAD transactions:
â¢ Governance, Risk and Compliance (GRC). Adherence to antitrust law and other M&A-specific regulations, adherence to other applicable regulations and advance the enterprise-risk model
â¢ Revenue growth. Cross-sell/upsell a new product/service portfolio for shared customer base, improve pricing, enter new market segment or geographies, and use expanded channels and distributions
â¢ Asset efficiency. Improve inventory management, measure returns on assets across a broader portfolio, increase efficiency across rationalized equipment and facilities, and improve cash and treasury management, including payables and receivables
â¢ Cost reduction. Develop a combined IT infrastructure, eliminate duplicate roles and functions, integrate operational structures and processes, and increase negotiation power over suppliers
Each of these “value drivers” has an associated set of required information and data. As a result, information management competency has become one of the key indicators for MAD readiness and ultimate financial success. Information management competency incorporates six key elements:
â¢ Access to all enterprise data. Aggregating any data format, regardless of location or date
â¢ Data transparency, security, and auditability. Certified data repository for visibility, integrity, and privacy; validation through lineage analysis
â¢ Data quality management. Quality metrics tracking and improvement
â¢ Fit with integration architecture. Interoperability with enterprise architecture
â¢ Timely delivery to target users. Information for decision support at the right time
â¢ Enterprise-class deployment. Scalability, flexibility, and availability of common data foundation.
The following figure summarizes how the four M&A enterprise “value drivers” are enabled by the six critical elements of information management:
Many believe the origins of the current financial crisis can be traced to a combination of industry deregulation, failure to adequately comply with governance guidelines, inordinate amount of risk compounding actions and complete lack of information transparency as it relates to the packaging and ever increasingly complex securitization instruments.
GRC in Rapid Financial Firm Mergers
We have seen the trails of complex transactions in mortgage-backed securities, credit default swaps and other securitized instruments. In this scenario, there were often multiple, overlapping accounts and contracts across institutions and departments that were neither explainable nor reconcilable.
Many of the firms involved were likely limited in their ability to access, consolidate and certify data across the high volume of information firm-wide. Auditability and transparency, foundational to the GRC principles, were likely found wanting when overlapping or incomplete customer data was not easily traceable across the transactions and multiple institutions. It is very lilely that information risk continued to be a persistent thorn in their efforts to improve risk management.
A focus on improving the information management practices in the following areas could help mitigate some of the issues highlighted above:
â¢ Application-neutral approach to data. Take a service-oriented approach to manage data so that the availability of information is not constrained by physical locations or functional boundaries.
â¢ Quantitative reporting and notification. Use quality-metrics to demonstrate explicit adherence to regulatory compliance. Provide historical compliance records, including real time disclosure logs, to quantify the level of compliance and deviation, if any.
â¢ Data masking, encryption and versioning. As required, encrypt or mask data (to obfuscate data) for data integrity. Develop an environment where parties can selectively disclose information and add versioning during the review and negotiation cycles. Implement effective segregation of duties and use the automated system of records for management certification.
â¢ On-time audit and real time disclosure. Design the right-time architecture to maintain timely GRC reporting as well as real time disclosure.
â¢ High availability and business continuity. Architect a solution to maintain high availability and disaster recovery for the high volume of data post-integration.
These are the evolving dynamics in the market, enterprise value drivers and information management elements to drive value associated with MAD. In the next post, we will discuss ways you can take advantage of information management competency to achieve revenue growth and asset efficiency, drawing upon additional case studies.
Peter Blatman is a principal with Deloitte Consulting LLP. This article was co-written by Asish Ramchandran, principal, Deloitte Consulting LLP, and Julianna DeLua, enterprise solutions manager with Informatica.