Most companies that acquire or merge with other companies end up throwing away years of application software worth hundreds of thousands of dollars, because information systems are rarely considered at board level prior to a purchase. These are the findings of a recent survey commissioned by the Amdahl Corp/Electronic Data Systems Corp joint venture Antares Alliance Group, entitled Information Technology Issues Arising from Mergers and Acquisitions, which also warns of the Year 2000 bombshell awaiting purchasers who fail adequately to consider the technology systems they are inheriting. The survey, carried out in the UK by research group Metrica Ltd, questioned senior information technology management from 45 organizations, all of whom have experienced a merger/acquisition of greater than 25m pounds, mostly in the past three years. It found that two-thirds of organizations which go through a merger/acquisition scrap application software as a result. The major reason seems to be the perceived difficulties in integrating two different systems, rather than the costs involved in doing so. While hardware fares a little better, just fewer than half of acquiring companies end up scrapping hardware as well. When asked to estimate the approximate cost to the company of scrapping the software applications, some organizations simply did not know. Even counting the ‘don’t knows’ as zero cost, the estimated cost of scrapping applications over the past three years in the UK alone is at least 290m British pounds, and scrapped hardware amounts to some 60m pounds. Steve Green, Antares’ marketing director believes the way software is treated by accountants may be one reason for its being scrapped so easily. Unlike hardware, software costs will very often be written off in the year they are incurred, so that software will not appear as an asset on the balance sheet. Where the accountants may drive the continued use of any hardware that appears on the balance sheet with residual value, there may be no such driver for software. Green believes a decent application represents in some cases 10 to 15 years’ investment for a company, and should as such be treated as an important asset. He reckons these accounting procedures and management views stem from when software was written simply to automate existing manual procedures. Now that software applications are customer-facing, and often give the company its competitive edge, he thinks they should be treated as an asset in their own right. Of those surveyed, however, only 3% had sought to gain competitive advantage from the information technology they were buying. Far from gaining competitive advantage, few companies are so far considering whether the organizations they are purchasing are Year 2000-compliant, in other words, will the systems crash in 2000 because of the date problem? (CI No 3,030). Antares believes a merger or acquisition should be an ideal time for a company to re-evaluate its information systems and those of the company it is buying. The processes for looking at software applications would tell people a lot about the business processes they are buying in to, Green reckons. This is the time to decide which bits of a system should be kept, which should be thrown out, and which bits need to be integrated. Naturally, Antares is not an impartial bystander. The company’s Objectstar rapid application development and systems integration tools are targeted precisely at the situations found after mergers and acquisitions, and enable disparate systems from mainframes to Windows computers to talk to each other. Objectstar also enables parts of legacy systems to be re-written or ditched incrementally, as the company is ready. Impartial or not though, the company believes hundreds of thousands of dollars could be saved if bidding companies looked more seriously at the information technology they were inheriting through a merger or acquisition.
