Picture this: you’ve spent the last few months – if not years – planning every step of a merger/acquisition. You spent weeks coordinating the various departments to do inventory and sign contracts; you’ve consolidated all your tech/financial services. The big day finally comes, you sign on the dotted line and then, for whatever reason, you don’t go through with your IT plans.
This is cold feet syndrome and – in the world of digital manufacturing – it can have dire consequences on your bottom line.
In this week’s episode, D4M COO Jean-Yves Durocher will talk to you about cold feet syndrome in the context of Merger/Acquisitions. We will begin by talking about the potential causes of cold feet syndrome, how D4M can help guide you through the process, and the huge potential costs that will arise due to inaction in the face of the looming S4 deadline. In the end, the cost as technological progress will always complicate IT processes in the long run.
Don’t wait, as the IT headaches can only get worse!
Jean-Jacques: Based on your answer, it seems as though – even though due diligence and planning in a merger/acquisition takes a lot of time and money to complete, companies often deviate from the plan. They spend a lot of time planning when they’re going to buy a company, but then once the company is in their hands the plans change.
Jean-Jacques: So just out of curiosity what happens after the purchase that, gives these companies cold feet or shift priorities?
Jean-Yves: I think many things could happen once a transaction is completed. Obviously, the management is fully aware of what needs to be done; not only that, but due to the amount of time and effort going into the planning process, your prepared plan is quite good if done correctly. But once the transaction is done, it is just the beginning of a much longer journey.
Jean-Yves: Things can happen over time. For example, once the merger began, you could think that the best thing to do was to merge your ERP with the corporation you just purchased quickly. But, once you find out the complexity or other issues may come out from a licensing perspective and so on.
Jean-Yves: Not only that, but there might be afterthoughts that a certain part of the integration could be delayed or could be done differently because – let’s face it – during the due diligence, not every option available might be looked at. The time frame for the due-diligence process is quite limited. So, for any typical integration of a software component, you may have looked at two or three alternatives, but suddenly, once the transaction is complete and you have full access to the people/systems, suddenly, other options might become more attractive.
Jean-Yves: So our plans are made to be changed when necessary for any number of reasons; it could be other options coming out. It could be a cost; it could be the complexity of the merger; it could be strategy changing; etc. So, once the transaction is completed, things could change after.
Jean-Yves: It doesn’t necessarily stay exactly as planned.
Jean-Jacques: Still though, since we are in the industry of digital manufacturing, ERP is crucial in order to maximize profits in the production.
Jean-Yves: Correct. ERP is fundamental, it’s the foundation of the corporation. This is where you manage your inventory, your purchasing accounts, payable accounts receivable, and so on.
Jean-Yves: This is the heart of the corporation; hell, I would say the heart AND the lungs of the corporation. However, there’s a lot more to manufacturing than just the ERP software alone; you might be deal with scheduling, PLM, Digital twins; and so on. There’s a lot more sophistication and components to manufacturing than the software, but the ERP is in essence, the back office – the heart and lungs – of your operation.
Jean-Jacques: Okay, so just to understand the whole picture of this, let’s just say Company A is buying Company B, right? So, you said that there are three steps, due-diligence, the transaction consumed, and then the “day-one”. Using this example, when exactly does D4M come into the picture? I’m assuming it’s in day-one after all of these processes have taken months, if not years (depending on the size of the corporation of course).
Jean-Yves: I would say it depends on the client. We have done all parts of a merger several times, so we can assist in the due diligence. We can assist companies to develop the road maps, we’ve have been asked to stay for the transition period. That second example is for a simple reason I mentioned earlier, the buyer might not have the bandwidth or the manpower to go through the transition for integration and normally ask us to for some help to absorb this.
Jean-Yves: During the transition period the need for resources and IT skills is much higher than normal day-to-day operations. Long and short of it is we could assist and all three phase the due diligence, the preparation of the road map and the transition. We have done work for the buyer side as well as the seller; for example, we’ve had sellers also coming to us for advice and to guide them through the journey, which is a different perspective.
Jean-Yves: In the case of seller assistance, the seller will often want to not only decouple their system, but they also require significant amount of work to go through that transaction.
Jean-Jacques: I’ve talked to a lot of employees at D4M, and one of the recurring themes, especially when it comes to SAP ERP shops more specifically, is that on the one hand, priorities can shift, but on the other hand, when it comes to SAP, there is still that question of the looming deadline of 2027.
Jean-Jacques: Is there anything that you could tell Potential VPs or directors regarding this deadline and the exorbitant cost that is coming if they continue to have cold feet regarding ERP implementation?
Jean-Yves: Yeah, that’s a good question and we see this all the time.
Jean-Yves: That’s normal in the industry and a common scenario here is the buyers and sellers are – most of the time – on a different E. R. P. One might be running QAD or JD Edwards and the other one might be running SAP or vice versa. So, there are many combinations and permutations of mismatching ERP software in mergers/acquisitions.
Jean-Yves: But, even if you’re dealing with two companies that are both on SAP, it doesn’t mean they are on the same version. One could be already on S/4 HANA and the other one could maybe still running ECC6 or any number of older versions. You might have two companies already running SAP ECC6, but one might be running an older/different version than the buyer.
Jean-Yves: So, it’s very unlikely – not impossible, but unlikely – that you end up with a situation where the buyer and the seller just happened to be running the exact same version of SAP. That’s quite rare. And, beyond that, they might have modified the software; hell, they might be using the same software in a different way as SAP is a very flexible platform that has thousands of parameters to configure.
Jean-Yves: So, all in all, even if you’re on the same version, it doesn’t mean that you are using it and is configured the same way. So, long story short is there even if you are running the same ERPs, the context surrounding those ERPs are always different to some degree.
Jean-Yves: And – to add to your point – I think we all know SAP will stop supporting ECC6 in 2027. So, if we have to deal with one corporation using SAP is buying other corporation on SAP in the near future, above their heads is always a fear of “okay, everybody needs to be on S/4Hanna by 2027”. So, that adds another angle to the transition plan.
Jean-Yves: Regarding cold feet syndrome, I would say there is no one size fits all solution for completing ERP rollouts as planned. However, keep in mind, there are multiple ways to approach the looming S4 deadline that may add unforeseen steps/costs that you need to consider. For example, if the buyer’s company is using a more advanced version of SAP than the purchased plant, you may need to standardize your entire system first before upgrading to S4. You may be impatient and upgrade all plants to S4 and standardize during the process
Jean-Yves: So, there are many ways the 2027 deadline will add to the complexity of ERP implementations – even in a merger/acquisition – that you need to keep in mind before picking a path forward.
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D4M is a privately owned company specializing in leveraging digital technologies to accelerate manufacturing clients to their transition to Industry 4.0. With long tenure and hundreds or successful projects, we are confident that our approach and experience provides the roadmap to help bring clarity and efficiency to your manufacturing operation.
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