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Expert Advice for High-Growth Businesses

The New M&A Math for Choosing ERP Systems

Rudy Lukez
Director, ERP Product Marketing, Oracle

Company mergers and acquisitions (M&A) are on the rise, and a lot of this activity involves small-to-medium businesses (SMB). There is a good chance if you're a SMB and you are not acquiring another company today, you could soon be someone else's acquisition target.

Part of the justification for any M&A event involves delivering synergies of cost savings in terms of infrastructure, especially IT systems. There is often a goal in any M&A deal to select a single enterprise resource planning (ERP) system, aimed at achieving significant cost savings through increased operational efficiencies and by eliminating redundancies.

Sadly the results typically fall short. The merged companies duke it out, eventually selecting ERP system A or ERP system B after many agonizing months of tough intracompany discussions fueled by expensive consultants and bitter turf battles. It then becomes clear the selected solution needs upgrading or re-engineering, or worse, more custom objects and integration projects. Often when one current solution is ultimately selected over another, the results are generally disappointing.

So, rather than considering ERP A or ERP B, there is a growing trend to select ERP C – the cloud. The results are simply better across all aspects.

The Cloud Is a Better M&A ERP Choice

A cloud environment lets companies start fresh simply because the merging companies can accomplish multiple goals quickly all at once. Why? A cloud environment lets companies start fresh with ERP. With ERP in the cloud, everybody in this newly merged entity comes together in one modern system and simultaneously can clean up and normalize deficiencies.

But, best of all, when an application is deployed in the cloud, the bottom line wins. Compared to on-premises systems, cloud ERP is deployed for only 50 cents on the dollar. These are real cost savings that are invaluable for justifying any M&A event. It is a solid financial bonus – or perhaps better described as a financial insurance policy – that goes along with better operational functionality and system management. With option C, companies gain a lower cost system that also delivers integrated and continually updated functionality across every business operation from finance and reporting to all aspects of customers, sales, manufacturing, marketing, procurement, and employees.

Often when a company choose between A and B, the exact opposite of the desired outcome occurs. The new company ends up with a more complex, more expensive and less productive system because it had to add additional functional and system capabilities to get everything to work together to meet the needs of the new enterprise.

By choosing C – the cloud option – multiple goals are simultaneously and quickly accomplished. Standing up a fresh system in the cloud means not worrying about what data center will be used, what human resources are needed to support the larger on-premises environment, and all the details that go with rolling out one on-premises system (including data and process rationalization) to another organization that are often ignored in the pre-announcement M&A discussions.

To compound the problem of choosing system A or system B, companies may also be products of previous mergers and acquisitions. They may have inherited legacy systems that they have been previously trying to clean up while simultaneously burning through substantial amounts of hard cash to get the job done. Then add in additional challenges regarding scalability, performance, training, business processes, data cleanliness, and data mapping. The variations of systems A and B can quickly turn a seemingly binary choice into a complex multi-dimensional variable mathematical analysis.

It all gets expensive, depressing, and ugly fast.

By going to a SaaS cloud environment, you no longer deal with scalability, performance, customization, integrations and design limits. You leverage a single data model and modern best practices on day 1. Your new company gains a great new vehicle to move forward with a laser focus on the many stated goals of the M&A event.

Do the Math. Option C Is the Best Answer.

The math is uncomplicated and the potential return is massive. By picking C, rather than A or B, you select simplicity over complexity. The new company avoids all the issues associated with legacy on-premises ERP systems and gets to deploy solid strategies for common data, modern best business practices, and next generation systems. Plus, you get uniform consumer-like user-centric experiences with next generation technologies like artificial intelligence, digital assistants, blockchain and machine learning.

Most important of all, your new company starts with a cost-effective fighting chance for the combined organization to confidently check off one of the most important goals highlighted in the M&A announcement: "accomplishing synergies by reducing redundancies and streamlining internal infrastructure challenges."

The bottom line: Don't agonize over "A" or "B" when engaged in M&A. The winning answer today is always "C".

Gain actionable insight starting now! Download the SMB Cloud Technology Trends Report.

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