Hardly any investment case can do without synergies. Joint procurement, consolidated administration, cross-selling across a unified customer base—it all looks convincing in the presentation to the board of directors. In reality, almost all of these synergies hinge on one prerequisite: the systems of both companies must work together. If that doesn’t happen, synergies remain theoretical, and a growth project turns into a cost center.
United and Continental: The “Cutover” That Became a Customer Problem
An instructive example is the merger of United Airlines and Continental Airlines. The airlines merged in 2010. On March 3, 2012, United’s entire reservation system was switched over to Continental’s system, and at the same time, frequent flyer accounts were consolidated (Business Insider). United had prepared for this: Approximately 15,000 employees were trained on the new software (NBC News), and four dress rehearsals were conducted (IEEE Spectrum).
Nevertheless, significant problems arose. On the first day, on-time performance was only 69 percent, and at Chicago O’Hare Airport, it was 53 percent (Los Angeles Times). Calls to customer service rose from 1.5 to 2 million per week, and the processing time per inquiry increased by 120 percent—partly because many employees had to retrain to use a text-based command system instead of a graphical user interface (Daily Herald). Months later, CEO Jeff Smisek admitted to analysts that they had been too optimistic; many employees had not yet mastered the new system, and customer satisfaction had suffered (IEEE Spectrum).
The lesson: Even a well-prepared technical transition can fail if processes, capacity, and people don’t come on board. IT integration is always also organizational development.
Why Synergies in IT Fall Through
Four recurring patterns can be identified in integration projects:
1. Synergies are planned without an IT assessment. The cost savings from a shared financial accounting system require a common ERP system or, at the very least, standardized chart of accounts. If the IT costs and the time required for this are not included in the business case, the business case is incomplete.
2. The target architecture is decided too late. As long as it remains unclear which system will take the lead, both sides continue to invest in their own solutions. Every month without a decision prolongs the dual-system operation.
3. The integration is treated as a purely IT project. Data migration and interfaces can be resolved. More challenging are differing processes, pricing logic, discount systems, and working methods.
4. Capacity is underestimated. IT teams must ensure ongoing operations while simultaneously carrying out the integration. Without additional capacity, both areas suffer.
Four Integration Models—and When They Are Appropriate
Not every transaction requires a complete IT merger. In practice, four basic models have proven effective, which can be combined depending on the strategy.
Stand-alone. The acquired company retains its systems; only reporting and financial consolidation are integrated. This approach is fast and low-risk, but is only suitable if synergies are minimal or if the company is intentionally meant to remain independent.
Adoption of the buyer’s platform (absorption). The acquired company is migrated to the buyer’s systems. This creates the greatest economies of scale but is resource-intensive and requires that the buyer’s processes be a good fit for the target company.
Best-of-breed. For each area, the better system from either side is selected. What sounds like the fairest model is often the most complex because it creates many new interfaces.
New Platform (Transformation). Both companies migrate to a new solution, often in the cloud. This makes sense if both IT environments are outdated, but it delays the realization of synergies.
It is crucial that the chosen model aligns with the value proposition of the transaction. Those expecting cost synergies through joint management will find it nearly impossible to avoid extensive absorption. Those primarily seeking access to new customers or technologies should not jeopardize the target company’s innovative strength through a hasty system migration.
Typical Scenario: Two Software Companies, One Customer
A medium-sized software company acquires a smaller competitor. The synergy hypothesis: Customers of both companies should be offered the combined product portfolio. After the closing, it becomes apparent that both companies use different CRM systems, different billing logic, and different definitions of “customer.” A large portion of the customers exist in both systems—with differing master data. This makes cross-selling virtually unmanageable.
The turning point comes with a clear integration architecture: Within 100 days, a decision is made as to which CRM system will take the lead. Master data is cleaned up and merged, and billing is gradually standardized. The sales team gains a unified view of the customers. The cross-selling synergies are realized with a delay of about one year—but they are realized.
What Makes for Successful IT Integration
IT belongs in the business case. As early as the due diligence phase, an assessment should be made of which synergies require which IT prerequisites and what the integration will cost. This makes the investment case more robust.
The first 100 days are critical. During this time, fundamental architectural decisions should be made: Which system will take the lead? What will be migrated, what will be phased out, and what will be temporarily integrated? This phase should also include a joint integration office that brings IT, business units, and synergy managers together around one table. It tracks not only milestones but also which synergies are unlocked by which IT measures. This reveals where IT delays directly impact the bottom line—and where priorities need to be shifted.
Integration requires dress rehearsals—and buffers. The United case shows that tests must not only verify technical functions but also workload, processes, and employee usage. Equally important are reserve capacities in customer service and a fallback strategy.
Value contribution rather than system counting. Success is not measured by the number of systems decommissioned, but by whether the planned synergies actually translate into results.
Conclusion
Post-merger integration determines whether a transaction realizes its value. And in almost every integration, IT is either the bottleneck—or the lever. Those who involve IT early in synergy planning, make architecture decisions quickly, and get people on board turn synergy goals into measurable results. Twinlake supports integrations from synergy assessment through architecture decisions to the migration and operation of the merged IT systems.
Dr. Karl Michael Popp is an M&A expert and author specializing in software company acquisitions.Contact: +49 6202 5829917 | www.drkarlpopp.com
Parts of this blog might be AI generated
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A Modern Post-Merger Integration Playbook: From M&A Models to AI Solutions
By Dr. Karl Michael Popp
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