Recent headlines say it all: ”Anthem Agrees to Buy Cigna for $48 Billion” (Wall Street Journal 7/24); “Aetna buys Humana for $37B amid record number of health care deals” (USA Today 7/3); “$4.28 billion merger of XL and Catlin wraps” (Business Insurance 5/1).
Mergers and acquisitions (M&As) have become the normal way to grow, and each new deal seems to give rise to another. They are happening at every level of insurance as various size carriers, reinsurers, agents and brokers try to position themselves quickly for a business environment that depends on scale and diversity. Many insurers and reinsurers have excess capital after a prolonged period with no significant catastrophes, as well as challenges to grow organically. As ACE Chief Executive Evan Greenberg explained in the conference call that followed the announcement ACE would be buying Cigna, “We’re in a world of low growth. We’re in a world of low inflation.”
M&A is a lot like marriage, where making the deal is just the first of many critical steps to make it successful. There are a lot of moving parts during M&A, and technology considerations is one area that often gets overlooked until it’s too late. You should think of technology as an enabler, and many times a driver, of a successful M&A transaction.
Put another way, if you fail to consider IT at the beginning of a merger, it will certainly be top of mind for your next M&A.
Far from a distraction, technology has earned a seat at the merger-planning table alongside brand, product and other assets. In fact, IT resources and vulnerabilities should be part of the due diligence process preceding any deal. At a minimum, companies should know if a prospective partner’s applications bring not only ease of doing business but also other regulatory, security or strategic considerations.
Cloud technology should be considered an enabler of M&A since speed is essential to maintain momentum. IaaS (Infrastructure as a Service) and SaaS (Software as a Service) can be used to rapidly and inexpensively establish a closed sandbox environment to test out how applications and processes will perform. Once in the sandbox, those technologies that work well can be transitioned to long-term use, while those that fail to perform properly can be rapidly tweaked or discarded.
Cloud technologies also can provide a plug-and-play for long-term solutions with M&As and especially with company carve-outs. For example, one company needed an entirely new IT environment from front-end to back-end for a business it was spinning off as a separate entity. After exploring its requirements, the team was able to quickly procure a cloud environment and deploy several SaaS products that greatly improved their speed to market from months to weeks.
When you think M&A, think IT. Careful evaluation and deployment can drive short- and long-term success.