Why M&A activity is the perfect time for Platform Modernization

The past several years have broken records in terms of merger & acquisition value and volume. Tech M&A reached $790 billion in 2021, more than double the $339 billion from 2020, according to White & Case, a law firm that tracks this activity. Volume was also up 69% year over year, with nearly 2,200 transactions in 2021.

Of course, the news of the merger or acquisition is merely the first step in a journey for the two companies involved in the transaction. In all likelihood, these companies will need to combine or update their existing platforms. That’s often the reason for M&A activity in the first place: the companies see that their combined abilities exceed what they can do as individual companies, so they combine solutions to grow revenue and market share.

That doesn’t always mean that the two platforms plug in together smoothly. Redundancies and overlap are common, and the new business entity likely wants to eliminate them.

This makes M&A activity the perfect time to engage in platform and application modernization, combining the best components of existing products to make a new, productive, holistic system.

To better understand the opportunity, let’s dive into how replatforming is helpful to deliver against business goals, how best to approach it, and how to understand and manage the risks involved.

1. Struggling with legacy platforms is common

Companies too often struggle with legacy architecture, tools, and code. Part of the reason why an acquisition may happen in the first place is that one company may recognize that its product is outdated and that it needs to update or add new technology to its core offering in order to stay competitive in the market. For example, large banks may have histories going back more than a century, but newer fintech companies are springing up in response to current consumer habits and behaviors. A bank may buy a fintech startup in order to stay relevant to younger customers but it’s critical that the bank doesn’t kill the modern practices of the company it just bought.

Of course, M&A activity often compounds issues associated with legacy platforms because integrations are usually planned-out over long periods of time to maintain BAU (if at all). This leads to multiple code bases, platforms, processes, and infrastructure being used across one newly-united company while the integration is underway. While this is a common issue, it’s not a reason to avoid a modernization process, and we’ll touch on some ways to work around this problem later on.

2. The benefits of platform modernization

In the hypothetical bank and fintech example above, the benefit is clear: if a bank can integrate a new fintech company and modernize its platform, then the bank can use that fintech company to draw in new customers to its existing products. It can also modernize its existing platforms as part of the integration process, remaining relevant and adapting as the banking business continues to change.

For most customers, a modern unified architecture allows for more rapid and scalable product development and significantly lower costs. This is particularly important in M&A activity because it protects the investment and helps the acquiring company make the most of its new purchase.

If the new solution is not modern technology, then it’s a sunk investment. Think about digital products that are always changing and adapting to rapid changes in the market. It’s important to modernize these tools to protect an investment. Modernization is an investment in the future to ensure that the new company is going to remain useful and relevant to its customers for years.

Digital products that undergo platform modernization reap a myriad of benefits, including:

• The ability to develop faster and increase scalability.
• Access to more in-market resources.
• Quicker deployment.
• Faster time to value, excelling at change.
• Increased ability to experiment (e.g. A/B testing, canary releases).

Another common situation is a private equity carve out. In this situation, Company A, backed by private equity investors, acquires company B. The PE backers then look at the assets of the newly combined companies and decide to divest themselves of one tool. This carved-out tool can become a standalone business of its own, but it also needs to undergo the modernization process if it is to continue supporting clients of the two companies it originated from.

3. Modernize now, before it’s too late

By starting the process immediately following a merger or acquisition, the newly united company can more easily navigate some of these challenges of using legacy systems. There also may never be a better opportunity to update and eliminate redundancies.

All too often we’ll see companies think they don’t need to modernize because they’ve invested heavily in their legacy systems. This can make it hard to recruit new talent that wants to work with modernized technology, stall innovation because the old platform can’t support new ideas, and frustrate current employees. The longer that the combined company uses its older and outdated platforms, the harder it is to move on to something new.

Companies may also have a misaligned view of their technology. If tech has been viewed as a cost center, rather than a revenue or innovation driver, then the mindset makes it hard for leadership and team to modernize applications. The result may be that the company continues to pay the high costs of maintaining separate platforms and multiple teams, simply because the internal belief is that technology should cost a lot.

These are the kinds of companies that fail to adapt to the rapid change that is upon them. A pandemic or a recession can come as a wake-up call, but it may be too late and too cost-prohibitive to change at that point.

Companies need to push a modernization mindset immediately after a merger or acquisition.
What no company wants is for a massive investment to never pan out. Failure to update may mean that the company doesn’t capitalize on the marketing opportunity that led to the M&A in the first place. Within the technology space, it’s all too common for companies to never truly integrate acquired technology and teams.

4. Seize the opportunity, step-by-step

Companies that recognize the window of opportunity that a merger or acquisition presents to modernize their platform must then begin a step-by-step process to ensure that they succeed on the first try. Going step-by-step will produce next-level, customer-facing, revenue-generating products.

Stage 1: Assessment & Prioritization

Once all of the paperwork is signed on the merger or acquisition, it’s time to assess what the newly united company actually has on hand. An Objective Architectural assessment provides the foundation for the platform modernization approach. It’s critical to understand what the application or platform looks like, from an architectural perspective, and the company’s goals when it comes to modernization.

The best modernization strategy depends on what a company has, and what it wants to do with its platforms. Looking closely at the code ensures that there is a path to follow to modernize the application. Many companies have failed by trying to do a “big bang” approach where they try to modernize everything at once. By the time they are finished, the needs have changed and they haven’t completed every part of the modernization process that they originally wanted.

Stage 2: Determine Approach

The next step is to craft a proposal on how to modernize. This proposal will have a well-defined technical strategy, outlining the tooling, languages, and architectural services that will be part of the modernization process. This high-level roadmap lays out what pieces will receive focus first, and the phases for implementation and testing.

Stage 3: Identify Implementation Team

Platform modernization often requires a culture shift across the organization or at least a change in mindset. Change is hard, after all.

The team responsible for overseeing the modernization plan should come from company-wide leadership, along with stakeholders from the IT department. The goal is to build a team that can support the modernization effort and the necessary training that may come with new technology or processes. This is particularly important following M&A, because you’ll need to form a team with representatives from both companies, which will help unite the technologies and provide a balanced perspective of what each offering brings to the table.

Stage 4: Create a Roadmap & Timeline

The assessment and approach steps ultimately yield a timeline of how the modernization effort will move along. Ultimately, companies need things to move forward in a way that minimizes outages, downtime, or a disrupted customer experience. If some products are dependent on one another, they must be migrated together.

The culture component comes into play here as well, because training is a key part of the roadmap. In order for modernization to truly take root internally, everyone has to be trained in the new ways of doing things. Once again, this makes sense following a merger or acquisition, because it helps put everyone at the newly-united company on the same page.

The timeline can help shift the culture as well. By defining the major steps and clearly communicating these to the affected teams, then everyone understands not only why change is happening, but when it should happen and what it is leading to.

Stage 5: Implementation, Testing & Launch

One of the best places to start with modernization is in a low-impact area. Reporting is one common piece of almost every platform, so by starting the modernization process on the reporting section of a tool, the teams can then test and analyze before moving on to the next step of the process.

After rigorous testing and ongoing training, you can say that your company has truly modernized, and is well-positioned to protect the investment in the M&A.

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