Podcast transcript: Rapid foundations for mergers, acquisitions, divestitures and startups
33 min approx | 27 February 2023
Susannah Streeter
Hello and a warm welcome to the EY Microsoft Tech Directions Podcast. I'm Susannah Streeter and in this episode, we're focusing on mergers and acquisitions, divestitures, and start-ups, and looking at how companies can make progress more quickly, efficiently, and most importantly, effectively. M&A activity presents opportunities, but can equally bring on plenty of business migraines, particularly operational struggles through the transition. While speed and change are crucial, businesses simply can't afford for transformations to fail, success will have major repercussions. If the right technology is leveraged, innovation can scale up and the groundwork can be set for exponential value to be created. But just how to get there? How can you accelerate ERP integration? What steps can be taken to streamline and automate processes, improve financial controls to drive growth and embed analytics and AI capabilities, and ensure there are few hiccups on the way? Well, that's what we're going to be discussing during today's podcast. And I'm delighted to say I'm joined by a top panel of experts in the field, who will assess the opportunities we face and give us their insights on the best approaches to take.
But before I introduce them, please remember, conversations during this podcast should not be relied on as accounting, legal, investment, nor other professional advice. Listeners must of course consult their own advisors.
Now please welcome Alex Corps, partner at Ernst & Young LLP, United Kingdom, focused on Microsoft Business Applications innovation. Hello there, Alex.
Alex Corps
Hi, Susannah.
Streeter
Great to have you with us on the podcast. Also, Bimal Pall, Strategy and Transactions partner/principal at EY Parthenon, based in Seattle. It's great to have you with us.
Bimal Pall
It's great to be here.
Streeter
And finally, Amer Dalain, Global Solutions Strategy Leader at Microsoft for Dynamics 365 Finance, based in Dallas. Hello there Amer.
Amer Dalain
Hello, thank you for having me.
Streeter
So let me start with you Bimal. Why do some companies get bogged down post-merger or acquisition? And promised synergies simply seem so hard to deliver? For example, just how much of a problem can legacy tech be?
Pall
That's a great question. And there's really no one reason why this tends to happen. It could be a multitude of different aspects that kind of feed into some of the inefficiency. And as we kind of call it bogged down, but essentially, to your point, legacy tech does play a big role. As we've seen, as part of acquisitions, or mergers of multiple companies, certain legacy tech nuances, along with some of the data inconsistencies can definitely help extend timelines, as well as the ability to be able to report on a consistent basis, along with also really the footprint of the acquisition or the merger. Sometimes it can take up to years. Another key component of this would be also the ability to be able to map key technologies, like for an example ERP, an SAP versus an Oracle, a Microsoft Dynamics vs. a NetSuite. Another key factor as part of this is really resource requirements and competing tech-driven or enabled solutions, and the ability to obviously, as I kind of mentioned earlier, to consolidate on one platform. Lastly, and I think the biggest piece really driving the integrations are the synergies from a financial standpoint, both IT-led and IT-enabled. There are a lot of pressures which help drive the end state but ultimately resourcing, and key support models drive what companies can get accomplished, and how quickly the ability, for example, to be able to close your first-month end on an ERP or another consolidated platform, not to be doing this on a manual basis for an extended period of time.
Streeter
So, there are plenty of challenges, as you say, Bimal. Let me bring in Alex now and following on from what Bimal has explained. Do you think that highly complex tax environments are often part of the issue as well? Do you think that these risks or past experiences limit some companies’ appetite for more M&A activity, perhaps?
Corps
I definitely think they do. Experience tells me that taxes are a complicated area, which is why I tend to bring in the experts to help me to deal with it. But it's often overlooked, left to the last minute along with some other things. And the problem with that compressed timeline is you have to try and do an awful lot and often you get it wrong because you haven't left enough time. And the result is that you miss your timelines to report and you might get your data wrong. And as we all know, the last thing you want to do is get your taxes wrong.
Streeter
Absolutely. Well, let me bring in Amer now. From your experience Amer, is the tool kit that's been assembled or the technology generally available to support this process, often lacking in vital parts do you think? I mean, are some functions forgotten in the race to make changes after signing on the bottom line? Or even before that actually takes place?
Dalain
Excellent question. Actually, there are certain areas that usually get less attention till they become big issues. And companies tend to underestimate what's needed here. One of them is definitely around data migration, and consolidation of data. That is absolutely needed to establish a single source of truth, historical data needs to be migrated and managed, not to mention data coming from other secondary systems. So, data migration is key. And that usually takes a lot of time and effort. So, a tool kit that has that planned and supported will definitely pay dividends. And that's very, very important. Another topic is security. Especially if you are in a case where you need to maintain older systems, you could potentially run into compliance risk, security risks related to threats of hackers or viruses or malware and all types of ransomware. So, these things need to be front and centre when you plan these kinds of projects.
Streeter
As you say, there are plenty of data challenges. To what extent is the changing business environment Amer with increased demand for real-time reporting, pushing needs for new ERP systems up the agenda?
Dalain
Well, these are definitely important. And one of the key benefits of a modern ERP system and modern data state is that you have real time reporting, not only on the transactional data in your core system, but also data coming from other systems and even trading partners. You should be able to bring data from your vendors, from your customers, and also third party and have all that merged together. So, you will be able to do not only real time reporting, but also predictive analytics, where technology helps you see the future of where things are going.
Streeter
Yeah, really interesting. Always want to predict the future, don't we? Alex, what are your thoughts here?
Corps
While Amer was just answering, then I was reflecting back on some of the projects I've done in an M&A environment. And let's take one of these as an example, where we had to migrate a client from a legacy SAP solution onto a Microsoft solution. And it took 12 months to do that. And just thinking back to some of the earlier questions, there were so many factors in why it took so long, including the fact that there was no management in place because it was effectively a start-up. But also, the data we were getting was unstructured, it was poor quality. So, we had to do so many runs of extracting the data, reloading it, and then managing to get it to the right quality to bring it in. It's one of the reasons why I think the focus now is about getting up and running on a new platform very quickly. But in doing so that you look into the future and go well hey, I want to get on a platform. And as I'm in a start-up environment, or I've bought a business, I need to get them up and running on my system quickly. How do I do that? But also, how do I do it with a view to the future? And I think this goes back to Amer's point, which is, I can do the first step. But actually, I should have a view what's coming up in the future. And I should look at my legacy data. So typically, legacy data would be, you know, in the old days would be imported into your new system. But we're finding now that can actually be a really painful process, because a lot of that data is old and needs to change in terms of your reporting structures. So now we use different technology like you know, without going too technical, a data lake to store it. And we can use reporting tools to bring that data together and present it to a user. So, they don't even know it's legacy data. And then back to Amer's point looking into the future. Well, if I've got all this data, then why can't I look at using tools to do my thinking, at least a simple thinking for me, so I can get me and my team to do things of far more added value?
Streeter
Yeah. And that's crucially what everybody wants to see, the extra value that comes from this transformation. Well, let me bring back in Bimal. Bimal what's your take on data challenges?
Pall
Yeah, I think Alex and Amer both make great points there and cover a broad area of some of these key challenges. But again, based on my experience, as well, it really does come down to how soon can I get my data and where is it consolidated? I think that's really the key thing from an M&A perspective. You're going to have so many disparate and other systems kind of sitting standalone. Obviously, you can implement the ERP, you can have your Online Transactional Processing (OLTP) being able to report that data on a real time basis. But how do we consolidate it and integrate some of those additional systems so that we do have one consolidated view? That's what we really face as a challenge, making sure that data is consistent and making sure we're able to report off of it and that we can forecast and plan as early once we close that transaction.
Streeter
So, for a company starting out looking at this, really trying to forge their way ahead in the dark, what do you do the best ways of fuelling financial synergies are to accelerate change and minimize risk?
Pall
Yeah, some of the key synergies realized spread really across finance operations, and IT. Obviously there are multiple other functions, but they are core to an ERP environment. To fuel the synergy, the EY Microsoft Services Group has developed an ERP accelerator, what we call rapid foundation for M&A to help realize the synergies faster. The accelerator that was developed based on leading industry practices is our Dynamics 365 ERP with 85% configured accelerator for implementation as quick as four to six months based on some of your geographies as well as some of the functionalities that are being implemented, you know, across finance and operations. This can work really in two different ways as a second-tier ERP, or as your mainstay global enterprise ERP. It all depends on where the organization is thinking from a future standpoint, and how they want to be able to realize some of those key financial synergies from an acquisition or maybe even if it's a larger merger, this will, as we touched on as part of the data challenges, help with the not only the month end close, but with financial planning and forecasting as well. And then secondly, we have seen this being utilized even on divestitures. The ability to carve out a divesting business unit and hand over to a buying entity. What sellers tend to feel is that there's a lot of risk in granting access to the buyer to their own enterprise ERP. So, they want to be able to minimize that risk for the seller, as well as reduce Transition Service Agreement (TSA) costs for the buyer. Some of the TSA costs we've seen could go upwards of half a million dollars on a monthly basis for ERP access. And typically, you see anywhere from 10, 12 all the way up to 24 months TSAs. So, you can see the costs really do add up, and the ability to be able to utilize something and handover to a buyer as part of a transaction can really, as I mentioned, minimize the risk for the seller, and reduce some of the financial burden on the buyer as well.
Streeter
Bimal, thanks very much. Alex, let me bring you in. What can you add to this? What about, for example, if a company has a lot of data spread around and really wants to centralize it?
Corps
Well, like I was saying earlier, I think there's an opportunity here, if you're a private equity house for example, and you are regularly transacting on businesses, whether you're divesting or whether you're acquiring, it's important to have a consistent reporting platform as a private equity business, but also to allow you to get your acquisition, let's take that as a first step, to get your acquisition up and running on to a platform that you know, and you understand, and is preconfigured. And doing that quickly to minimize TSA costs for one, but also the pain of having to merge two different reporting structures into one. And the technology that we're using as part of rapid foundation allows you to do that. And as I mentioned before, you've got this data lake that allows you to consolidate data. And then you've got different reporting tools, Power BI as an example, that you can use to dashboard and give you KPI insights across legacy data, and all of your different portfolio company datasets. So, from a user point of view, it's pretty seamless, but also from a business point of view just makes it so much easier at month end to see where you are in your process and see how your businesses are all performing against expectations, which as we all know, is critical in this kind of environment.
Streeter
Certainly is. Bimal, I suppose this approach can also help across different geographies as well. Alex alluded to that.
Pall
Yeah, absolutely. I mean, that's the beauty of this accelerator is this can be configured and implemented across all multiple different geographies. It has multi-language support and tax setup by country or region. So, you can utilize and roll this out across the globe, based on obviously, where the company resides as part of their offices and services that are offered there.
Streeter
Yeah, Alex, what's your experience with this global approach?
Corps
Well, it's not just limited to mergers and acquisitions activity, but we always try and when dealing with a global client is to build a global template, one that works for most of the business for most of the time. The reason for doing that is it makes it a) easier to implement, cheaper to implement, but also makes it easier to maintain. You're now seeing the world move to being in cloud-first, which means that you're subject to regular updates from each of your software vendors. Meaning that the more software vendors you have, and the more integrations you have, the more complex it can be to maintain that. You have to regression test every time something changes across all of your systems in their portfolio. So, a templated approach is absolutely the way we go, the rapid foundation approach is very much configuration first, so we minimize customization. But also, we do push to accept our 85% pre-configuration. Of course, we can deviate and actually some clients have asked us, some of our more global clients ask, can you give us a client X flavor of your rapid foundation? So that it's not entirely the same, but it has a bit of their special sauce, so to speak.
Streeter
Yeah. Amer let me bring you in with this special sauce idea. What types of companies would suit a preconfigured offering? High-growth start-ups perhaps? Which ones need that extra bit of special sauce?
Dalain
Well, that's an awesome question. And I totally agree with Alex and Bimal on the concept of a standardized template. Companies tend to think that everything they do is unique. From experience, I find that a lot of companies share the same processes. And they are not as unique as they think they are. For example, finance, annual percentage rate (APR), fixed assets and similar processes tend to be, I would say, 90% exactly the same across companies. Some industries have unique flavors. So having a tool kit and having a foundation that has that part preconfigured or having those questions already answered, will save a lot of time. So, I would argue that having a foundation that's already configured, having a template that's already in place, can work for almost all companies globally. And then, as Alex said, each company can have its own flavor, which is a layer we can add on top of the template, on top of that preconfigured offering to suit the industry, the local regulations and secret sauce and whatnot. But I would urge companies who are considering this approach to be open-minded and accept a standard, and then take that and modify it in specific areas that are unique to their business.
Streeter
Interesting. So, Alex, whether you want that special sauce or a particular flavor, what steps do you need to take to get you through this process?
Corps
You know what, it's a hard road to go down. And I don't mean that to scare anybody. What you need to do is when we take out this preconfigured offering, we have to drive our clients to adopt these processes. And it can be a bit of a painful process, but you know, we're used to it right? But the reason we do it is so that they have a much easier life later on when we've done the project and we walk away. But the key thing is, is we run through the processes, and we show them on the system and we go, why doesn't that work? Why can't you use this and you know, typically a lot of businesses will have done it a certain way for a certain number of years, and they won't want to change. But we absolutely challenge them to do so. So, it's a philosophy that we follow. Why not do this?
Dalain
Alex that's exactly the sacred question, why not? And if the business cannot defend it, you know that there is no reason to continue the old way. Let's follow a standard.
Corps
Yeah, because I've seen it done the other way, where I remember a particular former employer of mine, and they had 115 different ways to do a sales order. You could call that a learning point for me. And I'll just say I wasn't responsible for the 115. But I looked at it and just went, why on Earth would you do this, and it was all because they never challenged any of their locations to change. They just let them request what they wanted to do and built it. And I'll tell you what, they could never upgrade. They were stuck.
Dalain
They're stuck. One thing that you may run across as well is that users may confuse the limitations of all this technology and business requirements. So, when we say this is a standard way of doing it, we have always done it like this. And when you ask why and dig deeper, the reason behind it is simply that that's how the old system was, that's the only way the old system allowed them to do business. It really had nothing to do with the business requirements.
Pall
It's also mindset or change management. Oh, well, this is how I used to do it. This is how I feel comfortable. We don't think of it more from an efficiency standpoint as well. And the other piece I want to add to that is in the old way, when you purchased an ERP, it was a kind of a blank slate almost for them. So, you had to customize it to make sure that it fit the processes. Given the fact that over the years, accelerators now have been built based on an industry focus, not just from an overall ERP template, but more of an industry focus. It cuts down obviously on some of the initial implementation work, but also helps improve those inefficiencies that we've seen over the last 20-30 years.
Streeter
And Bimal is there anything you can add through an M&A lens as well?
Pall
Yeah, absolutely. Not limited to a certain set of scenarios or companies, it's really valuable across the whole spectrum, where ERP is concerned, but concentrating more from an M&A lens. It creates a strong business case for serial acquirers, private equity, as well as companies that tend to acquire and integrate maybe certain business units together, and they want to be able to now sell that off, given market conditions. For example, we had a client in the consumer products industry, who wanted to set up a distributor model across different global geographies. And they were very risk-averse about letting outside companies into their ERP environment, the ability to segregate access to be able to look at financials for some of their other BUs, and given assigned to close period that is very, very short. And being able to accomplish all of that is always not at the forefront. So, we introduced them to the rapid foundation offering preconfigured. Obviously, for their finance and supply chain operations. On close, they were able to hand over the system to the buyer with no impact to business operations, and no ERP TSA costs.
Streeter
So fascinating. Really, that example really does show some of the implications and offerings available. Amer, can you tell us about your experience working also with companies which have really benefited from a new enterprise ERP system? What kinds of challenges did they face?
Dalain
Well, one example that comes to mind is that of a large multinational consumer goods company that went through several acquisitions in the last few years. Every company they acquired, they let them decide what system to use. And after a while, they end up in a position where they have to maintain huge number of systems and complex integrations and different processes and whatnot, consolidating data, and bringing in numbers from these subsidiaries became a nightmare. So, they have decided to standardize on Microsoft Dynamics. So, every time they acquire a company, without questions, they implement dynamics, Microsoft Dynamics 365. And over a period of time, they built the needed expertise to do those implementations very quickly, they built those templates in a way that really aligned with their business, really aligned with their expectations, to a large extent, they de-risked that migration and the data management of those exercises to a high degree. And that was very, very beneficial. So now whenever they acquire a company, they know exactly what to do, they know exactly how much time is going to take, they know exactly their eye on that investment. That was very, very beneficial.
Streeter
So, they have that muscle memory. So, Alex, what kind of time scales are we looking at for this type of project implementation?
Corps
Well, I'm going to be a bit slippery here and say that it's a bit of a piece of string really, because there's, like I said, so many factors involved. But if we assume that the fully preconfigured templated approach can be accepted by the business, then you're looking at between 12 and 16 weeks to do, to be live and go into some sort of support and hyper care. But it does change according to whatever you need to adapt. So, remember, I said earlier, we've got one client who's interested in having their own template. So of course, that's going to take a little bit longer for us to deviate from that pre-configured template to meet their special sauce. But often, it's an investment worth making.
Streeter
Yeah, and as Alex is pointing out there Amer, there can be plenty of unexpected developments along the way. So just how important is ongoing support?
Dalain
Absolutely important. Even though the type of support that's needed now is different. Now with solutions living in the cloud being supported from the technology side, from the infrastructure side by the cloud provider, the type of support has changed. You don't need as many database administrators and server managers and server admins anymore, but you need business analysts who know the system, who know the configuration and can help with that and that is absolutely critical to have either in-house or in close partnership with a partner.
Pall
I think Amer hit it right on the head, obviously this is not our native way of thinking and on-prem offering with the type of technical support for infrastructure and data centers. It really is a turnkey offering where Microsoft provides your monthly updates, and maintenance from a database perspective. And to that support structure is reduced. And natively how we think about the deep technical knowledge now really has empowered the business super user to configure and support. And to further reduce resource impacts on the organization, the EY Microsoft Services Group provides support to help manage the updates and other changes to the ERP post-implementation.
Streeter
So ongoing support. Alex, it's clear that this is absolutely underpinning all of this, isn't it?
Corps
Yeah, I think it's because of this change in the way we work due to the move to cloud means that businesses, because they're having to do this continuous update and regression test, they just don't have the capability in house to do it nor the time. So, the model has changed. And that's why often we find that they're asking us to give them almost a point on a spectrum of support, it can be an absolute minimal break or fix to support, or it can be full, you know, almost a managed service kind of support angle. It's actually important that we do it, and we offer it. And it can be any point on a line, like I just said, from break fix all the way to a fully managed support service. And the best bit is because we, you know, we look at it from a global view, we have support staff around the world, meaning we can manage a full 24/7. So, you know, it's a demand made upon us by clients, but we're absolutely there to help them.
Streeter
And Amer you alluded to the fact that partnerships are increasingly important. Do you see that as the future going forward, as well?
Dalain
So, to answer your question, partnerships are absolutely critical. And companies as they invest in new solutions, and technologies, those technologies are continuously evolving, as Alex mentioned, and as we mentioned before. Microsoft in this case, for example, publishes updates continuously of the Dynamics platform. And these updates need to be considered, tested, need to be looked at, maybe they bring new value, maybe bring new features that you want to look at. A team has to be continuously looking at this. These applications are evergreen, these applications are continuously evolving, the technology is always updated. So having a partner or having a team of support, always available that understand the technology on one side and also understand your business, on the other side, is definitely critical. The last thing you want to do is have the team on that Friday evening trying to close the month and they run into an issue and they will be nobody available to support them.
Streeter
Absolutely. You certainly want to avoid that, don't you, Alex?
Corps
So, I think it goes beyond even just support. I think that the market has changed dramatically. I've been in this space for about 25 years, although I'm sure I sound much younger. The world has changed quite a bit. And the clients are now reaching a level of maturity, where they will look at the world a bit differently. And they no longer expect just a system integrator, they expect true partner. If you think they're investing potentially multi-millions of you know, whatever your local currency is, into their program, they expect a lot for that, and quite rightly so. So, they often look now beyond just a pure system integrator, and they look for partners who can bring a lot more to the party and almost a Swiss army knife if you like. So, they might ask for support. We talked about tax earlier, super important, often overlooked. But they often now ask us and, we're lucky, we have that capability to take tax specialists in the technology out with us to help us make sure not only that the client is doing tax, right, but that we've got the system configured in the right way. But it's more than that. If you think about it, we were talking earlier, the 115 ways of doing a sales order. Where that had fallen down was not in having an adequate change management process and structure in place to help the business adapt the new technology. And it's a really important part of an implementation. And again, it's something that clients know as they get smarter about buying these, these kinds of offerings that they're asking us to do it. And we're absolutely here to help them. So, I really think the world is changing and partnership, because of this investment, is critical. You know, we want to be there for the long term to work with our clients. And now we typically have multi-year relationships with clients. And we just continue to support them.
Streeter
Alex, well thank you and we're coming to the end of the podcast now. We've just got time for some quick takeaways. And I'd like you each to offer one nugget of advice that would really help companies setting off on this journey. First of all, Bimal.
Pall
So, you know growing up in an ERP world. Implementations typically, on average took one to two years easily. Given where we are today and obviously M&A life cycle, that would never fit. But because of the rapid foundation accelerator that we have developed based on industry-leading practices, we can do this now, the M&A life cycle can incorporate a new ERP either for an acquisition or for a divestiture and help minimize risk as well as reduced costs.
Streeter
So really clearly summarizing what you feel about the offering there. Alex, what's your quick takeaway?
Corps
Well, I think this is all about speed to value. And I think we do the first step of that with rapid foundation. But I think you need a North Star that you're heading towards, which is way in the future, that allows you to leverage the best of the Microsoft platform that's kind of pre-integrated on all these components. So have an idea of where you're going and map out all the stages, you're going to go down together.
Streeter
Brilliant, Alex, thank you. And Amer.
Dalain
A quick thing to share with you is, as you continue to invest in automation, it's important to pay attention to collaboration, these two will go hand in hand. As automation increases, increases its speed increases productivity, if collaboration is not there to support it, those exceptional scenarios that automation doesn't handle will negatively impact your productivity. So, as you invest in automation, equally, invest in collaboration.
Streeter
Brilliant. Speed, the North Star, and collaboration, a great summary there. I'd like to thank you all for such a fascinating discussion, some really useful insights on how business should prepare and use all the tools available. Thanks very much for your time.
Corps
Thank you, Susannah. It's been great to be here.
Dalain
Thank everybody. Thank you for having me.
Pall
Thanks, Susannah. Thanks team. It was great learning some of the key insights.
Streeter
It certainly was and for more information you can visit ey.com/Microsoft. And a quick note from the legal team. The views of third parties set out in this podcast aren't necessarily the views of the global EY organization, nor its member firms. Moreover, they should be seen in the context of the time in which they were made. I am Susannah Streeter; I hope you'll join me again for the next edition of the EY Microsoft Tech Directions podcast. EY and Microsoft, work better, achieve more.
