Investors historically have been skeptical about merger synergies in utility mergers, assuming that regulators will insist that most or all economic benefits flow to customers. However, recent...
Utility M&A: Betting on the CIO
Presenting 5 critical factors in realizing merger-related savings.
The utility industry has seen a large jump in merger and acquisition activity over the last couple of years. Intensifying pressures to achieve scale and lower costs have driven much of this activity. And with more than 3,000 utilities still operating in the United States, the industry can expect M&A to thrive for the foreseeable future, with deals growing in scale and complexity.
While estimates vary, a high percentage of all persons executing mergers have difficulty effectively executing the integration. The IT expense alone of utility mergers can cost a quarter of a billion dollars or more. So what makes the risks worth taking? What are the barriers to success? And how can these barriers be overcome?
One of the single greatest challenges is the integration of information technology (IT). IT touches almost every aspect of a utility’s daily activities, from basic hardware and software to business processes and security practices.
Simply put, poor execution in IT can delay the integration of processes/operations, consume a lot of time and effort in platform standardization, and lead to tremendous cost overruns, resulting in inflated cost to achieve (CTA), lost value, and lengthy delays. Handled well, however, IT is an opportunity that can save a utility and its stakeholders millions of dollars, valuable resources, and countless manhours while establishing a platform for future growth.
Critical Factors to Achieving Success
How can the IT team realize the expected cost savings, manage its CTA, support the business teams’ targets and daily activities, and support a smooth integration? We have found that successful utility M&A IT integration incorporates five factors:
• Structured Approach
• Process Discipline for the Business
• Achievable Vision
• Realistic Targets
• Capacity to Manage Change and Communication.
Critical Factor #1: Adopt A Structured Approach
Implementing an IT integration is as much about following a proven, structured process—consisting of a program management office and supporting processes, tools, and accelerators—as it is about achieving synergies. Such a process can accelerate the integration and subsequent synergy capture significantly. Since mergers are not an everyday activity, very few companies have in-house expertise to do this. Nor can they rely on existing IT service providers.
Establishing a strong framework with tools and templates at the very beginning will ensure that all of the integration components are up and running and able to adapt to changes.
A strong IT Program Management Office (PMO) is an essential part of implementing and enforcing any structured approach. A post-merger integration can span several years; therefore potential risk occurs when company management becomes distracted with other priorities and turns their attention away from the IT integration. To avoid this, the IT PMO must provide strong, long-term management, continuity and maintain a cross-initiative focus that enables the IT team to continue hitting its targets.
Critical Factor #2: Insist on Process Discipline
The IT and business teams