As the financial crisis wears on we’ve been witness to a steady string of failures and mergers of financial institutions. While the merged survivors are lucky to still exist, the next step of mending and merging their IT systems might be equally painful compared to what they’ve already gone through.
Gartner analyst Kristin Moyer warns that most of these mergers are going forward without giving even a thought to what needs to happen post-merger and what it would take for the merged entity to successfully go forward as a unified institution. Today’s banking and finance institutions are heavily dependent on IT, and the successful merger of these companies requires that IT integration get done right.
IT is typically not considered until after the merger is signed. A study in 2007 by May group found the number as high as 75 percent. A similar study by Bloor Research had a number close to 79 percent. Compounding the problem is that these institutions are still under incredible pressure to perform — most of these companies will be cutting back on IT, even though the amount of IT work is significantly higher than before the merger.
Financial M&A activity does not have a good track record. Even when companies under normal economic conditions have planned and executed on mergers, the integrations have often not gone well. A study done by the Economist in 1999 found that two out of three financial mergers have failed. Capgemini found that half of the financial mergers from 1999-2000 ended up losing value for their shareholders, and Merrill Lynch found that large bank mergers performed worse as a group when compared to smaller banks.
