M&A + Cloud = Love

Cloud technology promises to transform cost-structures, manage risk and optimize the time of the transaction executions.

Mergers & Acquisitions (M&A) activity over the past decades has seen steady growth, characterized by peaks and valleys due to financial booms and crises. The significance of information technology has become obvious to advisors and executives in pre-deal as well as during execution phase. In some cases, technology has been the key driver behind the execution of transaction. In an enterprise setting, technology is often discussed in the context of applications and underlying infrastructure.

Worldwide spending on Cloud is estimated to grow at 22.3% CAGR, as predicted by IDC. Technology providers taking Cloud-only and Cloud-first approaches to the delivery of their solutions. In effect, enterprises are increasing the adoption of the Cloud to run their business services. Oracle CEO Mark Hurd recently noted, “We have a big existing on-premise user base and I believe all of them will move [to the cloud]”.

Both integrations and carve out executions require an infrastructure stack to provide services. This is typically done using traditional on-premise or hosted solutions that can take significant time to procure, provision and implement. Cloud providers have the potential address some of these pain points by offering on-demand capabilities that can be provisioned in a matter of minutes in pre-configured packages

On the other hand, key business systems such as ERPs and core applications deployed on-premise traditionally undergo heavy source code customizations that may impair the ability to upgrade, increase capacity, separate or consolidate. Typically, source code modifications increase risk and negatively affect overall transaction execution timelines. Ideally, modern Cloud-based applications are deployed using Software-as-a-Service (SaaS). A SaaS model provides a workflow-based approach to customizations and does not require source code changes. This helps organizations streamline business processes and in turn simplifies transaction execution activities.

Above all, due to its subscription-based nature, Cloud helps convert traditional capital expenses into operating expenses. Thus, reducing the upfront one-time costs.

Cloud infrastructure expedites delivery, reduces risk and effectively manages cost. Moreover, it does not matter if the parties involved in the transaction currently operate with Cloud because it can be considered as a target environment. However, this will require a shift in the approach to M&A to harness the many advantages that Cloud technology has to offer.