Backbase research suggests that 72% of merger and acquisition (M&A) executives expect their M&A activity to increase in the next year. Does your organisation have a merger or acquisition in the offing in the upcoming year?
Along with large scale digitisation, M&As are looking like the most viable means of boosting profitability and growth, for financial services providers here in Australia and further afield.
PwC's Global M&A Trends in Financial Services: 2024 Outlook notes the imperative to either get bigger or get more strategic about what's in the portfolio.
'Besides internal measures, M&A continues to be an essential part of the transformation journey, especially as organic growth faces severe challenges in the current macroeconomic environment,' PwC global financial services deals leader and Report author Christopher Sur notes.
'M&A-related transformation steps may include acquisitions to enhance capabilities and drive future growth through economies of scale and scope…The challenging market environment creates a strong headwind for market participants to consider M&A transactions,' he writes.
A greater volume of smaller transactions, and longer and more complex deal processes, are likely to ensue, Sur predicts, as dealmakers look for value across the asset and wealth management, insurance, private equity, payments and fintech sectors.
The high-tech consolidation challenge
While it's a rare merger or acquisition that proceeds without a drama or several, consolidating and integrating the respective technology infrastructures of the two entities is very often chief among the challenges that need to be overcome. Backbase has found that 70 per cent of technology integrations fail due to components that could – and should - be addressed at the beginning.
And, in 2024, the stakes have never been higher, given Australian consumers' ongoing defection from bricks and mortar banking to digital services.
Failure to reduce the complexity of the two stacks and maintain a high level of customer service can damage the value of a deal and result in customer churn – sub-optimal outcomes that are best avoided.
Here are some of the ways ICT leaders can head them off and create value for their organisations during the mergers and acquisitions process.
Advocate for a fresh start
Two tech stacks, both in need of renovation… If neither of the organisations has cutting edge digital technology in place, attempting to merge their respective software platforms and processes may well be more trouble than it's worth. Given the complexity and cost of stitching together dozens, even hundreds, of standalone solutions and operational siloes, starting over with a designed-for-purpose software eco-system can be a smarter option. ICT chiefs who are able to make a compelling business case for doing so should seize the opportunity to embrace the new.
Spend now, save later
Old houses, old cars, old equipment… they're all costly to operate and maintain. So is aging tech infrastructure. While significant capital investments can be anathema to the C-suite looking to a merger or acquisition to boost earnings and profits, they're an unavoidable outlay for financial services providers that want to keep up with the competition on the customer experience front.
Replacing legacy hardware and networks as part of the restructuring process can make it easier for the enlarged organisation to deliver slick, seamless customer journeys.
So can implementing engagement banking technology that makes it possible to transform customer experience efficiently and cost effectively, via the rapid roll-out of pre-integrated capabilities and out-of-the-box journeys
Given research shows customers are three times more likely to defect to a competitor when their bank is going through an M&A process, not advocating for these very necessary investments could, in time, cost your organisation very dear.
Accelerate the high-tech merger timetable
Cutting costs is very often the driver behind M&A activity, with financial services providers looking to grow their customer bases while reducing their real estate footprints, staff headcounts and operational costs. A reduction in ICT spending can contribute to the latter goal – but only once core systems have been consolidated.
It's on the ICT chief to communicate this reality to the C-suite and board and propose a clear, achievable timetable for the integration process. The sooner it's done, the closer the institution will be to realising positive returns.
Towards a bigger, better future
Mergers and acquisitions are intended to blend the best of two business entities, making one plus one equal three, by uniting their strongest features and discarding the dross.
In the digital era, it's impossible for financial services providers to achieve their desired outcomes in the absence of a robust technology foundation that can drive superlative customer experience and support healthy growth.
That's why convincing fellow decision-makers to invest smartly and generously in the high-tech integration process at the outset is the smartest move an ICT leader can make.
