Best practices to optimize costs after mergers and acquisitions with AWS Organizations

Mergers and acquisitions (M&As) offer organizations the opportunity to scale operations, diversify product lines, and capture new markets. However, they come with a set of challenges, such as the nuances of integrating legacy IT systems, complying with stringent regulations, and maintaining business continuity, etc. Eliminating the redundancy of resources and optimizing processes to bring consistency in operations, while managing and optimizing costs, plays a pivotal role in maximizing business value after you complete a merger or perform any M&A activity.

In this blog post, we discuss best practices and considerations for optimizing and managing AWS resources and costs after a merger and acquisition using AWS Organizations. We also introduce and utilize various cost optimization and analytics services that AWS Organizations integrates with such as Amazon S3 Storage Lens, AWS Compute Optimizer, AWS Cost Optimization Hub.

Prerequisites

• Familiarity with AWS Organizations, AWS Control Tower, and a multi-account set up on AWS.
• You understand your organization structure set up in AWS Organizations for both the acquiring and acquired companies associated with the merger and acquisition.
• You have completed the migration of accounts from the merging organization into the main organization.

Best practices and recommendations

Evaluate the applicable tags in the merged organization for grouping resources and centrally managing costs

After the mergers, you must devise a strategy to adjust tags within the newly merged business and make use of Resource Groups to create logical collections of AWS resources based on specific criteria such as project, environment, or cost center. Doing so, you can perform bulk actions like applying updates, upgrading applications, adjusting network settings, and easily track and manage costs across your entire fleet of resources simultaneously. You can also identify cost drivers, set budgets, and optimize resource usage, ultimately resulting in potential cost savings on AWS.

To gain comprehensive visibility, establish a centralized billing and cost management framework using AWS Organizations. Suppose you have an application running on AWS, with resources spread across multiple services like EC2 instances, RDS databases, and S3 buckets, you can create a Resource Group for this application and group all its resources together. This enables you to view the combined costs of all resources in the group, making it easier to identify cost hotspots and analyzing usage patterns and right-size resources based on actual demand, reducing underutilization and overspending.

For example, apply cost optimization strategies, like Reserved Instances or Spot Instances, to the entire group for maximizing savings. You can use AWS Resource Groups to create logical collections of Capacity Reservations, called resource groups. You can also include Capacity Reservations that have different attributes (instance type, platform, and Availability Zone) in a single resource group. When you create resource groups for Capacity Reservations, you can target instances to a group of Capacity Reservations instead of an individual Capacity Reservation. Instances that target a group of Capacity Reservations match with any Capacity Reservation in the group that has matching attributes (instance type, platform, and Availability Zone) and available capacity.

Devise cost centers and implement consistent cost allocation tags across all AWS resources to track expenses accurately. Consider an example where after Company A and Company B merge, they need to consolidate their AWS environments while maintaining cost visibility for their respective projects, “Project Alpha” and “Project Bravo,” which have some overlapping workloads.

Cost Allocation Tags can help in this scenario:

• Define a unified tag structure, e.g., “Project,” “Environment,” “CostCenter,” “Application,” and “Department.”
• Migrate and re-tag resources according to the unified structure. For example, “Project Alpha” resources tagged with “Project=Alpha,” “Environment=Production,” “CostCenter=IT,” and “Project Bravo” resources tagged with “Project=Bravo,” “Environment=Live,” “Department=Engineering.”
• Identify and tag overlapping workloads with both project names, e.g., a shared database resource tagged with “Project=Alpha,” “Project=Bravo,” “Environment=Production,” “CostCenter=IT,” “Department=Engineering.”
• Use AWS Cost Explorer to generate cost reports based on various tag combinations, enabling visibility into costs associated with each project, environment, cost center, or department, including shared costs.
• Implement a cost allocation or chargeback model that accurately attributes costs to the respective projects, cost centers, or departments, including a proportional allocation for shared resources.

Identify and reduce resource redundancy in the merged organization

When organizations merge, there is often duplication between their cloud environments that leads to wasted spend. Comprehensive reviews help uncover the redundancy of resources and optimized consolidation.

We recommend you start with the AWS Cost Optimization Hub enabled with AWS Organizations to identify, filter, and aggregate AWS cost optimization recommendations across the merged entities. It makes recommendations on resource rightsizing, idle resource deletion, Savings Plans, and Reserved Instances. As shown in Figure 1, the Cost Optimization Hub can help you view a single dashboard with recommended cost optimizations and consolidated findings across your merged organization. You can aggregate estimated savings by filtering it by AWS Account, AWS Region, resource type, etc.

If the automated recommendations don’t suit your needs and you’d like to perform the cost optimization analysis by yourself, you can explore AWS Cost Explorer integrated with AWS Organizations to visualize the recommendations across your organization.

Figure 1: Estimate monthly savings with Cost Optimization Hub

If you are an Enterprise Support customer, you can also view further optimization recommendations from AWS Trusted Advisor. Trusted Advisor can help you identify underutilized resources, idle load balancers, and other areas for potential cost savings as illustrated in Figure 2. We recommend you enable AWS Trusted Advisor across your organization and create reports with recommendations. Read the blog post Continuously optimize your operational excellence posture through AWS Trusted Advisor for more prescriptive and best practice guidance.

Figure 2: AWS Trusted Advisor can help identify cost optimization checks

AWS Config assesses, audits, and evaluates the configurations and relationships of your resources in your AWS account. The service can be used for Cost Optimization too. Consider a scenario where you can be alerted if a specific Amazon Relational Database Service (Amazon RDS) instance is deployed in the account. If a larger instance type than required is used, it has the potential to incur unexpected costs for the given account. To address this, you can implement a custom rule in AWS Config, to optimize cost by monitoring database instances and providing alerts.

Optimize your compute cost corresponding to your post-merger business needs

AWS Compute Optimizer helps you optimize costs after a merger or acquisition by providing recommendations to right-size your EC2 instances across multiple accounts managed through AWS Organizations. It analyzes your workload patterns and suggests instance types that can reduce costs while meeting performance requirements. By consolidating accounts under Organizations and leveraging Compute Optimizer’s recommendations, you can identify and eliminate underutilized or oversized instances, leading to cost savings across the combined compute resources in your merged organization.

Figure 3: AWS Compute Optimizer – How it works

Integrate Compute Optimizer with AWS Organizations via the Compute Optimizer console. This enables Compute Optimizer to perform any configuration that it requires, such as creating resources needed by the service.

To get started with AWS Compute Optimizer, designate a member account as the delegated administrator for Compute Optimizer using the Compute Optimizer console. Use the delegated administrator account to set up Compute Optimizer to identify resource optimization opportunities for all accounts within the organization. For more information, see Getting started with AWS Compute Optimizer. If you are working with container workloads, you can benefit from leveraging Split Cost Allocation Data across multiple accounts in your organization.

With more workloads and infrastructure, there are increased opportunities for committing to reserved instances to save costs, and leverage tiered benefits. Analyzing usage patterns is important to determine the right Reserved Instances (RIs) configurations. Evaluate existing RI commitments from both organizations and assess their applicability to the post-merger or acquisition environment. Modify or transfer RIs as needed to align with the revised usage patterns and infrastructure requirements, increasing utilization and cost savings.

Develop a consolidated data archiving and storage strategy

After a merger and acquisition transaction, review storage usage across both organizations and identify opportunities for cost savings. Develop a data archiving and storage strategy to manage data retention and compliance requirements during or after the integration process.

Amazon S3 Storage Lens delivers organization-wide visibility into object storage usage, activity trends, and makes actionable recommendations to optimize costs and apply data protection best practices. S3 Storage Lens is the first cloud storage analytics solution to provide a single view of object storage usage and activity across hundreds, or even thousands, of accounts in an organization, with drill-downs to generate insights at multiple aggregation levels. You can identify cold S3 buckets with S3 Storage Lens, meaning that the bucket’s objects aren’t frequently accessed, visualize granular insights by adding filters based on Account, Region, Bucket, or Prefix as shown in Figure 4. Leverage AWS storage services such as Amazon S3 Glacier and Amazon S3 Object Lifecycle policies to automate data archival and lifecycle management, reducing storage costs over time.

Figure 4: Amazon S3 Storage Lens provides a single view of object storage usage and activity across all S3 buckets in an organization.

For efficient and centralized data management of backup policies and data retention, enable AWS Backup integrated with AWS Organizations. It offers a centralized and cost-effective solution for managing backups and data protection across multiple AWS accounts and services for your merged organization. For more information, refer to Optimizing AWS Backup costs.

Identify and eliminate the redundancy in networking infrastructure

Mergers and acquisitions often involve integrating disparate IT infrastructures, leading to potential redundancies and inefficiencies. These transactions typically involve hybrid networking. Failing to optimize data transfer and networking costs on AWS after a merger or acquisition can result in significant unnecessary expenses. Utilizing data transfer and networking optimization techniques can ultimately maximize the financial benefits and synergies from the merger or acquisition.

During mergers and acquisitions, consolidating IT infrastructure and optimizing associated costs like data transfer and networking become critical when integrating new accounts into an existing AWS Organizations structure. Key steps include identifying and consolidating regional data transfer patterns, AWS PrivateLink and Resource Access Manager to reduce data transfer charges, and utilizing AWS Transit Gateway for centralized VPC connectivity management.

Centralized cost monitoring through AWS Data Exports and Amazon QuickSight provides visibility for combined billing data. Implementing service control policies (SCPs) within AWS Organizations enforces cost optimization practices across merged accounts, while AWS Cost Allocation Tags enable categorizing and allocating costs to specific business units or projects.

Refer to the AWS Network Optimization blog post for detailed networking optimization recommendations during the integration phase.

Manage your support and license costs

Proper support planning can help you reduce costs, mitigate risks, ensure business continuity, and facilitate a smoother management of merged entities. Upgrade to Enterprise Support Plan as it provides access to AWS Cost Optimization experts who reviews your AWS architecture and usage patterns and provide personalized recommendations on how to optimize your resources, rightsizing instances, leveraging reserved instances, and adopting cost-effective services and architectures.

A significant advantage of Enterprise Support is its organization-wide coverage. Once you have an enterprise support plan across your organization, all accounts you add or invite will automatically inherit the same level of support. This streamlines the process, eliminating the need to attach individual support plans to each account during the merger. Please note that this capability is currently available to customers in select Regions only, and requires that your enterprise contract contain the necessary terms. Contact your Technical Account Manager to understand your eligibility for enabling this feature and additional information on the support plans.

AWS License Manager enables you to manage your software licenses and fine-tune licensing costs. Integrating AWS Organizations with AWS License Manager gives you a visibility of licenses across your organization. It helps optimize licensing costs during mergers and acquisitions by providing centralized visibility into software licenses across merged entities. Figure 5 demonstrates how AWS License Manager enables license tracking, pooling, and redistribution, ensuring compliance and avoiding duplicate purchases, leading to significant cost savings.

Figure 5: AWS License Manager dashboard provides an overview of your software licenses from vendors, such as Microsoft, SAP, Oracle, and IBM, across AWS and your on-premises environments.

To streamline software procurement, eliminate redundant licenses, and have a consolidated visibility across the merged entities, we recommend using AWS Private Marketplace enabled across the organization. It enables centralized governance, cost control, and efficient software distribution, ensuring a smooth transition during the merger and acquisition while increasing cost savings.

Continuously monitor and optimize costs after a successful M&A activity

It is critical for you after a merger and acquisition activity to monitor continuously the costs in your environment. This is because you are usually the customer with the scope and opportunity of maximum optimization, and bring in efficiencies in your environment. Establish proactive cost monitoring and optimization practices to review continuously and adjust resource usage based on evolving business needs and cost drivers. Plan to conduct periodic cost optimization reviews to identify and eliminate unnecessary or underutilized resources. This can include rightsizing instances, deleting unused resources, and leveraging cost-effective pricing models (e.g., Reserved Instances, Spot Instances).

You can monitor Amazon CloudWatch metrics across multiple accounts in your merged organization to see underutilized resources with little CPU/memory usage that could be downsized or terminated. To start and stop resources based on usage patterns, reducing costs for idle resources. Set up AWS Budgets and AWS Cost Anomaly Detection to receive alerts and notifications for potential cost spikes or anomalies related to data transfer and networking. Implement automated optimization by using AWS Lambda functions to stop automatically or terminate idle resources. Consider also AWS Auto Scaling to adjust dynamically resource capacity based on demand.

Document the cost management processes and procedures

Document cost management processes, procedures, and lessons learned throughout the merger or acquisition to capture institutional knowledge and facilitate knowledge transfer to the integrated organization. Provide training and support to stakeholders on cost management best practices, tools, and processes to empower them to manage effectively costs post-integration. This will foster a culture of cost awareness and enable effective collaboration during the M&A transition.

If you have an internal knowledge sharing platform, document your processes there. Alternatively, if you have the Enterprise Support plan, you can leverage AWS re:Post Private, a fully managed, secure, and private space for you to build an organization-specific cloud community and provide access to proprietary knowledge resources. AWS re:Post Private centralizes trusted AWS technical content and offers private discussion forums to improve how your teams collaborate internally and with AWS to remove technical obstacles, accelerate innovation, and scale more efficiently in the cloud.

Integrate the services with AWS Organizations to avail volume discounts

You can enable the services discussed in this blog post, with AWS Organizations using the service’s console, or API operations/CLI command equivalents. This enables the AWS services to perform all required initialization steps for your organization, such as creating any required resources.

After merging the accounts from the merging organization into the merged organization, you can combine the usage across all accounts in your organization to share the volume pricing discounts, Reserved Instance discounts, and Savings Plans. For billing purposes, AWS treats all the accounts in the organization as if they were one account. Some services, such as Amazon Simple Storage Service (Amazon S3), have volume pricing tiers across certain usage dimensions that give you lower prices the more you use the service. With consolidated billing, AWS combines the usage from all accounts to determine which volume pricing tiers to apply, giving you a lower overall price whenever possible. AWS then allocates each member account a portion of the overall volume discount based on the account’s usage.

For example, suppose that Bob’s consolidated bill includes both Bob’s own account and Susan’s account. Bob’s account is the management account, so he pays the charges for both himself and Susan. Bob transfers 8 TB of data during the month and Susan transfers 4 TB.

For the purposes of this example, AWS charges $0.17 per GB for the first 10 TB of data transferred and $0.13 for the next 40 TB. This translates into $174.08 per TB (= .17*1024) for the first 10 TB, and $133.12 per TB (= .13*1024) for the next 40 TB. Remember that 1 TB = 1024 GB.

For the 12 TB that Bob and Susan used, Bob’s management account is charged ($174.08 * 10 TB) + ($133.12 * 2 TB) = $1740.80 + $266.24 = $2,007.04.

Without the benefit of tiering across the consolidated bill, AWS would have charged Bob and Susan each $174.08 per TB for their usage, for a total of $2,088.96.

If you have three AWS accounts: Account A with 10 TB of S3 storage, Account B with 15 TB, and Account C with 20 TB. As individual accounts, each would be billed separately based on their storage tiers. With those accounts brought in to an organization using AWS Organizations, the total storage usage of 45 TB (10 TB + 15 TB + 20 TB) is aggregated at the organization level. This 45 TB usage would likely fall into a higher storage tier, qualifying for a lower per-GB price compared to the individual account pricing tiers.

By leveraging this volume pricing discount through AWS Organizations, you can save a significant amount on your overall S3 storage costs, especially if you have substantial storage requirements distributed across multiple AWS accounts within your organization.

Conclusion

By implementing the best practices shared in this blog post, organizations can optimize resources utilization, effectively manage costs, minimize financial risks, and ensure a successful integration for all parties involved in the merger and acquisition activity. Read Improving Mergers and Acquisitions Using AWS Organizations with Warner Bros. Discovery to understand how Warner Bros. Discovery leveraged the AWS Organizations service and other integrating services to successfully complete their acquisition.

To leverage fully the AWS recommendations and assistance for reviewing, visualizing and optimizing your AWS cost, integrate the services covered in this blog post such as Cost Optimization Hub, S3 Storage Lens, Compute Optimizer with AWS Organizations. Consider designating a member account as a delegated administrator for the services integrated with AWS Organizations for decentralized and flexible management. To review the list of services that are integrated with AWS Organizations, see AWS services that you can use with AWS Organizations.

If you are undergoing the M&A activities and looking for best practice guidance on merging your organizations, see Account Assessment for AWS Organizations and a three-part blog post series on effectively migrating your accounts. For further reading, refer to Choosing an AWS cost management strategy, and Starting your Cloud Financial Management journey: Cost savings.

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