The Risks Of Company Mergers And How To Avoid Them
There are a lot of benefits to agreeing on a company merger with another business, and this includes, but is not limited to, increased market share, savings on costs, and access to new expertise and technologies. There are, however, additional financial risks that can come from a company merger, too. This is why it is essential for those involved in the planning and execution of a merger to have a solid plan in place and a good grasp on the types of risks ahead. Knowing the risks can help reduce the chance of them coming to fruition, so to help you with this, we’ve listed a number of these possible risks so that you can factor them into your plans.
It’s important to note that many mergers or acquisitions fail due to poor planning and leadership. However, that doesn’t detract from the fact that mergers can be a very logical and advantageous pursuit if done correctly. This first risk is likely the most obvious, but this is primarily due to how important this process is to get right. Integrating two companies is incredibly complex and can be very time-consuming. There are also a number of potential pitfalls along the way, which you’ll need to watch out for. Different company cultures, processes, and systems can lead to clashes between new and old team members,leading to delays and setbacks. Create a clear and easy-to-follow integration plan before you get underway to try to identify and mitigate possible risks before they become an issue.
As mentioned above, when integrating your company with another, there is a risk that the different company cultures between both will cause friction between teams. Those familiar with a much more relaxed environment might need help with a stricter working environment, and those that are used to more rules and regulations might not be used to a more casual way of working. It’s important that you consider a good compromise if both cultures don’t align with each other and find ways in which you can bring everyone together in a more unified manner. The chances are that you will create a brand-new company culture to accommodate everyone during the merger, which may take some time for people to get used to. Because of this, you should be patient while people acclimate to this new style of working to keep morale as high as possible.
While a company merger is expected to be positive from a financial perspective, plenty of potential hidden costs could arise and catch you off guard if you’re not careful. This risk can include increased levels of debt, changes in the business’ credit scores, and liquidity risks. To mitigate these financial risks, there are a few things to consider. First, you could hire a talented accountant that is well-versed in how mergers and acquisitions play out. You could also get further training on the laws and economics of mergers via an online course, or you could even train your management team on this process. Ultimately, knowledge and experience will help significantly during this time, and it’s important to make considered and careful decisions as you go forward.
A merger can also impact your company’s reputation with both members of the public and your team. For team members, it can feel as though the company is at risk of bloating and becoming something too big. There is often the fear that, in cases like this, certain members of the team will begin to get forgotten about and fall by the wayside. This can lead to your team developing a poor opinion of your leadership, causing them to become demotivated and produce poor-quality work. You could also get a negative response from stakeholders in the company who might see the merger as too much of a risk, or they might not understand why it’s happening. Ultimately, you will need to ensure that everyone is as happy as possible with this process or risk these reputational damages, especially if things go wrong after the merger.
Similar to the financial risks that your business might face, you will also have to be aware of the potential legal risks that can come with a merger. Many regulations surround mergers and acquisitions in the business world, and it’s imperative to abide by these rules wherever needed. You may also have to honour contracts that were already put in place with customers and clients. As well as this, you’ll also have to consider things like antitrust rules, which have been revamped in the UK to improve the investigation process,increase penalties for those who fail to respond to requests for information on their merger or acquisition, or provide misleading or false information entirely.
How to identify the signs that your IT department need restructuring
Eric Lefebvre, Chief Technology Officer at Sovos
For firms to execute transformations and meet their overall vision, it is crucial that their CIOs are able to recognise the signs that their department is in need of some internal change. In the current economic climate, CIOs working to fulfil their organisation’s priorities and meet business goals might hesitate to acknowledge that their IT department needs restructuring, never mind be able to identify the signs.
However, these problems rarely fix themselves and organisational restructuring requires conviction and determination from leadership for it to occur successfully. So, what are some of the key signs that CIOs should look out for?
Struggling to keep up with industry demands
CIOs unsurprisingly are working in an extremely demanding environment at the moment. Meeting these evolving demands is crucial for companies. When demands are not met and not handled properly, this can have a lasting impact on organisational goals and objectives, and even impact the way in which transformations are put into effect.
Depending on the organisation’s structure, the way in which being unable to keep up with demands manifests itself can differ. Despite double digit reductions across the industry, the search for talent across the tech world continues, project costs continue to rise as the cost of labour has increased and schedules have been disrupted by significant attrition. Many companies will also find business costs, such as that of third-party software, are higher than planned and technology debt continues to pile up faster than it can be sunset.
Whilst leadership teams might dedicate their department’s attention on the factors discussed above, they may find that their team will fall short when it comes to timely deliverables and helping maintain your organisation’s tech stack and guide its business transformations. Looking beyond the immediate problems of high costs and considering an internal reshuffle may be the solution for many IT departments.
Internal conflict within the team
Organisational designs with underlying issues can cause constant friction, especially when they go unacknowledged. An IT department that lives in conflict will certainly be reflected in results and less than successful tech transformations. CIOs will find that by adopting an organisational design which works through staffing issues, will better innovate, especially if they can all work together.
Department leads should have a strong understanding of their team’s work environment and guide them through any long-term or potential problems. When an individual is working in a demanding or complex industry, working well with your team shouldn’t be the main impediment to innovation. By acting quickly to eliminate internal conflict, CIOs can better lead and ensure their team’s focus is entirely on producing more optimal outcomes.
Delays are commonplace
When a large amount of your team’s time is spent setting objectives, budgets and timelines for the projects they are working on, it is vital that they are met. When delays are coming from the IT department, they will inevitably hinder the development of any business transformation, especially if it prompts teams to spend excessive amounts of time rearranging budgets and timelines and therefore hindering innovation.
IT departments are a crucial aspect in many different parts of a company’s transformations, so remaining on track when it comes to timelines and innovation is critical to operational plans. If delays have become commonplace in an IT team, and external factors are impacting projects, CIOs should look at restructuring an IT department to solve these issues.
The strongest team relationships do not happen by accident and are the result of good planning, strong leadership and a motivated team. CIOs can ensure this by providing vision and long-term strategy with clear goals and objectives to produce high levels of quality output.
When internal issues are noticed in an IT department, and are noticeably impacting team morale or productivity, this should indicate the need for departmental restructuring. Be that due to an inability to meet market demands, issues with productivity and meeting deadlines or internal conflict, these issues all risk a department’s functionality and an organisation’s ability to achieve its goals. In short, don’t overlook the warning signs!
Top banking trends of 2023 and global outlook of banking and fintech for the year ahead
Author: Professor Marco Mongiello, Pro Vice-Chancellor, The University of Law Business School
You’d be forgiven for assuming that the global outlook for banking and fintech will be dominated by the usual suspects:
Artificial Intelligence – AI plays an increasingly prominent role in banking and fintech by enabling personalised services, fraud detection, predictive analytics, use of chatbots and robo-advisors.
Blockchain and Cryptocurrency – the secure, decentralised and swift system for financial transactions that blockchain has brought to the fore a few years ago, is now becoming ubiquitous. An increasing number of transactions are recorded through blockchains technology, primarily in the cryptocurrency market.
Digital Banking and fintech – accelerated by COVID-19 pandemic, the adoption of digital banking is a trend that will persist as customers have become accustomed to the convenience and efficiency of digital banking. Moreover, fintech enables access to financial services for previously underserved populations in developing countries or less affluent social groups in more affluent societies. This includes mobile banking services, peer-to-peer lending platforms, and microfinance solutions.
Open Banking – another global trend is the use of open APIs (Application Programming Interfaces) that allow third-party developers to build apps to facilitate customers’ access to financial data and services from banks.
Nonetheless, the challenges posed by these rapid changes are reminders that banking, an industry that by its very nature needs to be conservative, risk averse and solid, wobbles on the unchartered grounds of fast and turbulent innovation, where entrepreneurship instead thrives. The underlying rationales of banking and fast digital innovation are not incompatible but do need solid operations and thought-through decision-making to avoid causing catastrophic collapses.
The recent examples of Silicon Valley Bank, Silvergate, FTX and Wirecard are stark reminders that digital entrepreneurship applied to banking doesn’t just bring to customers the visible transformation of valuable new services, but also dents (perhaps as an unexpected consequence) the rationale itself of the role of banks in the global economy. Moreover, the central banks’ ability to contain the effects of single banks’ defaults is no longer a certainty, as experienced just over a decade ago and more recently. The markets’ sentiments are hardly reassured by the commitments of even the most coveted players, such as the European Central Bank, the Federal Reserve, and the President of the United States himself.
Regulators are lagging behind and their attempts to catch up may cause further seismic shocks to the global banking system. For example, another trend that is emerging is one of artificial intelligence decision-centres (i.e., decentralised offices of banks which take autonomous decisions on behalf of investors) outside the most stringent regulatory environments, enabling banks to operate globally more efficiently and more competitively. And we can expect that regulators will close the gap either abruptly, as it is currently happening in China, where private banks are subject to an escalation of regulatory and monitoring restrictions, or more gradually as it is happening in Europe and in the US.
The questions we face, as individual or trade customers of our high street banks, as direct investors or clients of managed funds, are whether banking will become more user-friendly yet, for our daily use but riskier, too, or is it simply becoming more efficient, transparent and also safer.
I’m afraid that the answer is by no means an obvious one. Therefore, caution, level-headed decision- making and critical thinking have never been as important as these days. Whether you are looking after your family savings or growing your pension reserve, the imperative is that you keep updated about the providers of the financial services you rely upon as well as about the general regulations that apply to your financial transactions. This is where, for example, you need to be familiar with your rights in case of cyber fraud, as well as learning how to minimise the risk of becoming a victim thereof. Also, taking additional steps to evaluate the credibility, solidity and reliability of the online provider of that app that was recommended by a trusted friend, may prove a very good move.
Similarly, whether you are the CFO of a medium or large company, or are a sole trader wrestling with your own business’s finances, you need to reflect on what you really want from your bank in the first place. That is before you started to be swayed by the whirlpool of offers of ‘opportunities’ to multiply your financial investments. Chances are that your initial approach to your bank was dictated by either a need for financing your working capital, as per your budget and strategic plans, or to find a safe place for your temporarily idle liquidity. Perhaps you were also after some basic treasury services such as swift payments and debt collection. Maybe some other financial services closely related to your business operations, e.g. factoring. The advice is to give very careful consideration to services that are more remote from your business, because the trend for the next years is that more and more of those will be offered to you. But many new services will disappoint those who, sadly, cannot afford financial mishaps as they look to run and grow their business.
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