Why, and when, CIOs deserve a seat at the M&A negotiating table

When one company acquires another, it’s typically to enter a new market, gain market share, or obtain a new technology. In all three cases, IT systems and the data they hold are crucial to the realization of those goals.

“The biggest mistake most companies make when they’re looking at deals is they tend to minimize the investments necessary to bring the organizations together and drive costs out of the IT function to get those synergies,” says Mike Macrie, CIO of toy maker Melissa and Doug, who had to integrate a number of acquisitions in a previous role.

The key to ensuring success in such deals is for the IT team to identify the challenges up front, says Lars Ewe, CIO at industrial data services company DTN.

“I know that sounds so ‘duh,’ but often people make acquisitions and only then realize what they bought, technology-wise,” he says.

Sudheesh Nair, CEO of ThoughtSpot, says that companies exclude IT leaders from negotiations at their peril.

“If the CIO isn’t involved, at least in the early phases, the ideas you have in terms of how long it’s going to take to bring them together, how long it is going to take to modernize—all of those calculations could be really off,” he says.

Despite the importance of involving CIOs, just 24% of organizations included them in pre-merger planning, with an alarming number of IT leaders learning from the press that their company made an acquisition, according to a 2015 academic study of the role CIOs play in M&A successes.

Nair says he understands why some CEOs would want to limit those in the know: “M&As are so messy and sensitive that you want to keep the number of people involved really small. Any sort of leak is only going to cause the M&A to go sideways, or increase the price.” But, he says, “There’s no excuse for CIOs not to be in that room anymore.”

Despite that, many CIOs are still shut out of negotiations. Ewe is one of them, although he’s found a way to influence the discussion, providing those on the inside with a due-diligence checklist for technology.

“If you’re not part of the process, then you’re at least represented through a mechanism by which you say, ‘Get through this checklist and then I can provide you an assessment of the cost of integration,’” he says.

Questions for the CEO

Ewe is not the only one with a checklist: Kevin Hunt, CIO of Spirit AeroSystems, has one too, covering topics such as the age of the target company’s infrastructure (“That really drives whether the investment is significant or not significant”), and whether the IT workers are staff, contractors or outsourced.

Talent is also on Ewe’s list. “You’re buying people just as much as you’re buying technology,” he says. Understanding the interdependencies of the IT systems at the target company is also important: “If you want to integrate it into your business, you’re going to have to dissect it to some extent.”

Top of Hunt’s list, though, is cybersecurity as a check against the riskiness of the deal.

Macrie has heard this concern from buyers he has advised as well. “They’re very focused on the cybersecurity risk profile,” he says. “They want to make sure that any investment they make in a firm isn’t going to be tarnished by a severe cyber security incident.”

Not if, but when

At music distribution company CD Baby, VP of IT Tom Beohm gets involved in mergers fairly late in the process. “It usually comes to my desk once the initial groundwork has been laid,” he says, “and my work has really been around assessing the technology stack details.”

He would like to be involved in the process much earlier, though. “A key driver for M&A is often potential synergies, and the value that IT can provide in those conversations is the nuance around the capability of technologies to realize those synergies,” he says.

That early involvement hasn’t happened yet for him though. “It’s something I’ve talked with my boss about,” he says. “Part of my sales pitch was that our company, and every company, is a technology company today, and technology has to have a seat at the table to be successful long term.”

But Le Lu, CIO at One Workplace, has earned his place at the negotiating table. “I’ve been with the company for a long time, so the owners are comfortable with me and they discuss these things,” he says.

When the Bay-area specialist in high-tech office fit-outs was considering acquiring a new dealership in Seattle, he flew there to help conduct the due diligence process.

If there’s a lurking IT problem that needs solving, “the sooner you know, the better, because it’ll come back to hurt you,” he says. “It’ll need to be done one way or another.”

Paul Lehair, investment director at AlbionVC, cautions CIOs against seeking involvement too early in the merger process, however. If an employer has an active acquisitions strategy, then there may be many deals under consideration that will never reach fruition for one reason or another.

“You don’t want people to bug you constantly, but once it’s moving through the funnel and they’re looking at it quite seriously, especially if you’re talking about a fairly large acquisition, then that’s where you want input from the technology team,” he says.

Putting together a seating plan

So how do CIOs get that crucial seat at the negotiating table when the conditions are right?

Just ask, says Macrie. “Sit down with your M&A leader, whoever they may be, and talk about the value it’s going to provide from a synergy perspective and a growth perspective post-merger, and what the real cost is of getting there,” he says.

“If you can have that conversation with your business partners, most CIOs will be successful in how they’re invited to that table,” Macrie says.

And if all else fails, says ThoughtSpot’s Nair, then go for the nuclear option.

“CIOs need to get out if they don’t feel valued,” he says. “You should demand a seat at the table. If you don’t get it, you’ve got to go somewhere else. Companies are looking for forward-thinking CIOs everywhere.”

CIO, IT Leadership, Mergers and Acquisitions