While programs that directly tie to business processes, such as ERP, might provide a substantial issue in some M&A situations, they frequently have simple solutions, including email clients, databases, and security software.
Companies may specifically incur revenue leakage as a result of customer attrition, with competitors profiting from the interruption, or margins may decline as a result of the difficulty in resolving data across the many systems.
The ERP system is essential to organizational planning and the comprehension of operations. It at least holds a company’s financial data, but frequently also includes customer, inventory, supply chain, and information relating to products or services.
One issue is that the price, culture, and customer overlap are all important considerations in due diligence. Another important issue is the ERP system that the combined or acquired company would use.
How does ERP affect M&A Deals?
Of course, not every merger or acquisition calls for an ERP choice. Both parties need to carefully consider consolidating ERP systems, regardless of whether an acquired company has not yet implemented an ERP system and is managing its business on spreadsheets or QuickBooks, or if it is running an older, legacy ERP system or even the same software that the acquirer is running.
In other circumstances, the acquirer is content to allow the target firm to continue using its current system without having to formally integrate with the new corporate parent outside of broad reports and spreadsheets .
Others may view an outdated ERP system or a basic accounting system as a red flag of a lack of clear insight into the firm, but other considerations will persuade them to put off making an ERP choice until after the deal is closed, at which point they may make it months or longer later. But that might not be the best strategy.
Customers can still defect to rivals during a transition when an acquisition is made to acquire a new customer base, in part due to a lack of knowledge from the ERP system. Unnoticed income loss occurs as clients go to competitors or as a result of merely holding back their business.
Similar to this, when a company makes an acquisition to aid in the transition to a new business model, such as a subscription-based firm, revenue and consumers may leak out. In that case, recurring revenue and customer lifetime value could quickly dry up and harm the deal’s success due to the sluggish leakage of customers who don’t renew while the acquirer tries to manage orders.
Furthermore, the lead-to-cash process, which is where effective CRM and ERP solutions are essential, can be dangerous. Revenue and consumers can leak out from the middle of the funnel, the top of the funnel, and throughout the process when the systems aren’t integrated.
Understanding the Different Types of M&A Activity
When a business unit leads a transaction, the goal is often to acquire a more specific skill set or smaller piece of technology, such as a team of engineers. ERP is once more not a big factor in that scenario.
ERP also frequently takes a back seat in the case of serial acquirers, firms that frequently suck up smaller enterprises year after year.
If two businesses are forming a separate entity that needs financials as part of a joint venture, that decision might require an ERP. These scenarios frequently resemble private equity activities more closely because they don’t include the same kind of time constraints that a merger may.
Industry veterans concur that decision-makers must pay close attention to the ERP requirements when making acquisitions based on the addition of a new business model, such as when a traditional software company acquires a software-as-a-service (SaaS) firm or when a computer hardware firm buys an internet of things (IoT) company.
ERP Implementation Considerations
The preparation that goes into the merger or acquisition should be taken into account when deciding on the ERP system. Will the two businesses function separately or will they standardize their processes? Will one HR or finance team be able to serve both businesses? If so, maintaining two different systems will quickly become impossible.
The ERP decision needs to be included in the schedule for departmental mergers that most M&A agreements will have.
Change management should also be taken into account by a business that is integrating an acquisition into its current ERP system. If an ERP transfer occurs right away, it will add still another complication to an already stressful situation.
Companies may have problems sifting through the tens of thousands of people with websites claiming to be ERP consultants or be turned off by the astronomical prices the large systems integrators ask when looking for assistance. Again, M&A teams can adhere to the guidelines for implementing general ERP in this situation:
Verify that they have the necessary technical and managerial abilities, that they comprehend the industry, that they have a successful track record, and, in the case of larger organizations, that you are truly getting the experienced team you were promised.
Timing is always important in mergers and acquisitions, and ERP projects have a reputation for taking years and using up a lot of resources.
Indeed, implementing their own ERP could be a wise choice for a business considering acquisition as an exit option.
NetSuite for M&A
Time, agility, and adaptability are crucial considerations for M&A activity that justifies a new ERP system. Since it started offering cloud ERP more than 20 years ago, NetSuite has grown to serve more than 24,000 clients, many of whom have been involved in M&A transactions.
NetSuite is aware that businesses engaged in M&A require the ability to provide financial reports to remain adaptable in the face of significant change and restructuring.
Companies can get up and running with SuiteSuccess, an implementation and customer engagement solution that offers leading practices and pre-built roles and reports by industry. NetSuite complies with all the ERM considerations mentioned above and is built on making your job easier for you.
So Where Do You Turn?
Cloud ERP Partners is an ERP expert company able to help your business with the perfect ERP solution for you. Contact us today to find out more.