The Mergers & Acquisitions Cloud Center of Excellence (M&A CCoE) – Part 1
The purpose of this two-part blog post series is to provide high-level guidance and principles to Mergers & Acquisitions (M&A) stakeholders on M&A Cloud Centers of Excellence (CCoEs). In this blog post, we introduce the concept of an M&A CCoE. In Part 2 of this series, we detail specific roles and responsibilities for M&A CCoEs. This blog post series is written from the perspective of a buy-side entity, but the concepts, best practices, and considerations may apply to a wide variety of M&A or customer scenarios. While many organizations may have an existing M&A Integration Management Office (IMO), this series highlights important considerations for a cloud-specific arm of an IMO. We hope that this guidance will help organizations maximize the value of their cloud investments.
Introduction to CCOEs and a Rationale for M&A
AWS customers of all sizes, industries, and market segments are increasing their success in the cloud by establishing a Cloud Center of Excellence. CCoEs help organizations implement a well-defined enterprise cloud strategy, communicate and influence cloud impact on C-level business and technology goals, and assess the success of cloud initiatives. Customer and partner examples of CCoE success include Zendesk, Crayon, and Astro. Building upon the success of the CCoE, AWS Mergers & Acquisitions Advisory pioneered the concept of the Mergers & Acquisitions Cloud Center of Excellence (M&A CCoE). The M&A CCoE aims to solve common cloud challenges associated with M&A transactions, a few of which are described below.
Organizations participating in M&A activities commonly face challenges with cloud technologies, both on the buy-side and sell-side of a transaction. The organizational hurdles of integrating Information Technology (IT) organizations, application/infrastructure stacks, and technology processes introduce risks to both pre-close and post-close planning and delivery. These risks can quickly turn into blockers to transaction value realization or the ability to capitalize on the investment. As an acquiring organization defines their deal thesis and synergy goals, they also need to plan how technology strategy fits into executing against their expected transaction outcomes. A M&A deal thesis (also referred to as deal rationale, investment thesis, or deal hypothesis) is the buy-side organization’s strategic reasoning on why the particular M&A transaction will create value for the organization. The following cloud challenges often arise when entities are merging as part of an M&A transaction:
- Differences in cloud maturity and cloud skills
- Disparity in IT responsibilities and infrastructure philosophy
- Nascent/nonexistent executive or managerial understanding of the cloud’s involvement in M&A
- Newly merged organization’s understanding of newly acquired technology stack
- Organizational alignment on “Deal Thesis”, “Deal Rationale” and “Synergies”
One common best practice that helps organizations deal with these challenges is establishing a Mergers & Acquisitions Cloud Center of Excellence (CCoE). The M&A CCoE is a dedicated cross-functional & cross-organizational team that acts as a central cloud authority and cloud office during a M&A transaction. This team serves as the primary subject matter expert authority on the cloud and helps the organization develop best practices and thought leadership throughout M&A transactions. Furthermore, the M&A CCoE enables the organization to create repeatable processes, manage change effectively, and meet expected deal synergies effectively and quickly. The M&A CCoE also helps non-technical M&A stakeholders view the cloud as a transaction and revenue enabler, rather than just another method of IT infrastructure procurement. The goal of the M&A CCoE is to solve for the aforementioned cloud challenges.
Mergers & Acquisitions Cloud Center of Excellence Principles and Considerations
In general, the M&A transaction lifecycle occurs in three phases: pre-transaction, pre-close, and post-close. Below we discuss the key considerations for the M&A CCoE during activities associated with each phase.
During the pre-transaction and pre-close stages of the M&A lifecycle, the buy-side entity develops, sets in place, and enforces a Mergers & Acquisitions Cloud Center of Excellence (M&A CCoE). Once the buy-side entity achieves executive and IT alignment on the overall M&A strategy, the M&A CCoE leads the planning and strategizing of cloud related tasks.
The M&A CCoE staff includes IT, Enterprise Architecture, Security, Finance, and Corporate Development executives who primarily focus on cloud-specific value realization and risk mitigation throughout M&A activities. The M&A CCoE can be a part of an existing CCoE if the buy-side entity has one in place, or can be developed for a single M&A transaction. Along the same lines, the M&A CCoE can be integrated into an existing M&A IMO, or be its own entity within the corporate structure. The M&A CCoE influences and educates stakeholder teams, acting as thought leaders and subject matter experts to IT integration, security, compliance, cloud, application, infrastructure, finance, CorpDev, and teams accountable for accomplishing applicable cloud tasks during an M&A transaction.
The M&A CCoE should include:
- An enterprise architecture function that sets architecture, security, governance, and compliance standards for the M&A IT integration and related IT systems as part of the transaction.
- Common cloud diligence activities such as cloud security risk assessments, on-premises technical debt assessments, cloud cost optimization assessments, or infrastructure/workload asset valuation modeling.
- An analysis of the target IT organization’s cloud skill set, including people integration strategies and cloud education plans for post-close integration.
- Key performance indicators (KPIs), milestones, and metrics to track the success of cloud tasks and their effect on synergy realization. This data serves as evidence for resource allocation during M&A task planning and proves the value of IT teams during M&A.
- The M&A CCoE uses best practices and learnings from these processes to create repeatable practices for future M&A transactions.
After the Due Diligence phase, the M&A CCoE drafts and publishes an M&A Cloud Operating Model (COM) and post-close Integration Plan. To create this plan, the M&A CCoE staff partner with M&A stakeholders and work backwards from diligence, expected synergies, and the deal thesis. At this stage, members of the M&A CCoE also draft cloud integration playbooks for their stakeholder teams to follow during the post-close phases and work directly with Infrastructure and DevOps teams, creating standards, policies, and practices that enable cloud M&A integration tasks. This includes educating teams on how to architect an M&A well-architected landing zone in accordance with the buy-side entity’s governance standards. This M&A well-architected landing zone is an operationally efficient and secure cloud environment for the buy-side entity to inherit target IT estates and environments.
During the Post-Close phases, the M&A CCoE advises M&A IT Integration teams on cloud best practices for integration, tracks cloud tasks and priority, and provides thought leadership on cloud value-creation opportunities. These value-creation opportunities could be in potential areas such as advanced analytics, internet of things (IoT), artificial intelligence (AI), machine learning (ML), blockchain, etc.
In addition to value-creation opportunities, the M&A CCoE prioritizes security, compliance, and risk management activities. The M&A CCoE partners with the overall entity’s appropriate organizations for these elements, and evangelizes corporate policies and security standards to M&A stakeholder teams. They also act as an embedded security function within M&A integration teams, in the form of an M&A Cloud Security Architect, sharing knowledge and best practices for cloud cybersecurity. Furthermore, they set the “M&A Security and Risk Governance Framework” for the M&A IT integration and transaction lifecycle. This framework often includes strategies for controls and policy management, privacy management, security posture and compliance management, and a cloud security operating model. The M&A CCoE communicates security and risk management objectives to necessary stakeholders, and understands that those objectives will influence integration task decision making.
Furthermore, the M&A CCoE validates and documents tools, services, providers, and partners that help enable the success of tasks during an M&A transaction. This could include integration tools, 3rd-party software-as-a-service (SaaS) products, technical analysis and diligence tools, cloud consulting partners, deal advisory partners, or cloud service providers (CSPs). Having standardized validated services during an M&A transaction reduces friction and allows M&A teams to focus on completing tasks efficiently.
Deal Thesis and Cloud Synergies
The activities discussed in the previous section ultimately support the realization of a deal thesis and cloud synergies. An M&A deal thesis is the buy-side organization’s strategic rationale for a particular M&A transaction. The deal thesis guides the buy-side integration strategy between the buyer and acquired company. The deal thesis is a data-driven statement that provides evidence and guidance on the merits of a particular M&A transaction. Technology mature organizations will include the M&A CCoE and associated technology stakeholders in strategy discussions early in the M&A lifecycle. Qualified technologists add unique perspectives to developing a deal thesis, finding opportunities for cost and revenue synergies that may not have been included in initial strategizing.
After crafting a deal thesis, M&A stakeholders determine synergies. These synergies can include supply chain, logistics, human resources/human capital, product, cost, revenue, among other categories. The M&A CCoE advises M&A stakeholders on synergies that can be achieved and enabled by the cloud. As these M&A cloud synergies are determined and agreed upon, the M&A CCoE becomes responsible for communicating, tracking, and evaluating the success of cloud tasks that lead to the achievement of the synergies. The Corporate Development function in the M&A CCoE can provide key business context regarding synergies to IT stakeholders during an M&A transaction.
Common examples of cloud M&A synergies include:
- Data Center Consolidation/Reduction – Consolidate/reduce data center hosting facilities into the cloud based on real-estate, site location, and IT procurement strategy.
- Security – Standardize cloud-native security tooling and services, leading to a reduction in manual overhead in security operations.
- Database – Reduce dependence on database products with higher licensing costs, reduce operational costs, and eliminate vendor lock-in by moving to open-source or cloud native managed databases.
- Cost Optimization – Take advantage of cloud economies of scale, on-demand and usage-based pricing models, and resource optimization to reduce cost during an M&A.
- Modernize Core Digital Product – Add differentiating capabilities such as artificial intelligence (AI), machine learning (ML), internet of things (IoT) to develop competitive market advantage.
- Time to Market – Increase velocity of new feature and service releases to target customers by using cloud DevOps practices and tools and cloud product management best practices.
- Data Strategy and Data Asset Monetization – Use cloud data lakes, data warehouses, analytics, and machine learning to integrate data assets of merged entities, reduce data storage costs, derive new insights, and uncover cross/up-sell opportunities.
Conclusion and Next Steps
With the release of the Mergers & Acquisitions Cloud Center of Excellence, organizations can accelerate their M&A transactions’ expected business outcomes, reduce cloud risks and blockers to transaction success, and retain cloud M&A learnings and best practices for future M&A transactions. Part 1 of this blog series provided a high-level overview of the M&A CCoE, the tasks and features of a M&A CCoE, and guidance on deal thesis and cloud synergies. Please refer to the following links to learn more about how AWS supports digital innovation, cloud operations, cloud governance, and enterprise strategy.
As a next step, you can learn more about cloud governance services such as AWS Organizations and AWS Control Tower that help you migrate workloads faster with established multi-account controls that apply as your AWS estate expands. To further streamline mergers and acquisitions, please reach out to the AWS Mergers & Acquisitions Advisory (AWS M&A Advise) Team, a group of subject matter experts at AWS that provide a suite of complimentary advisory engagements to AWS customers engaged in M&A transactions. You can do so with this link.