M&A in Oil & Gas - The technology equation

Mergers & Acquisitions (M&A) have been a steady phenomenon in the Oil & Gas industry. Primarily engaged in to drive growth, divest non-core business and sometimes for combining strengths for survival, M&A also offers opportunities to maximize profits and spread the risks. However, in most M&A deals, the focus of the participants is on financial strategy and not so much on the technology integration. And this approach is a recipe for disaster.

Today, like every industry, Oil and Gas is also going digital. Technology is becoming the systemic backbone and data - the lifeblood of all organizations. Added to this, with the uniqueness of this industry and the complexity of the processes and operations, it becomes vital to ensure synergies in the IT systems.

ERP systems in the Oil & Gas industry are tightly integrated with a plethora of legacy applications. For the M&A participants the challenge lies in handling the ownership of these applications and carving out the new ERP system post M&A.

For a newly merged entity (or the parent organization in case of an acquisition) it is important that the inherited technology applications align with the long term business goals and IT strategy. Therefore, IT organizations of both sides must engage early on in the long drawn process of M&A.

M&A in Oil & Gas - The technology equation

Once your IT executives start their discussions, they must cover some critical areas listed below:

Application Licenses: Will ERP, Middleware and other proprietary application licenses be transferred to the new entity? Will any custom built applications be omitted during carve out and ownership transfer? If so, are they business critical /used for legal reporting?
System carve out: Who will perform the ERP data carve out? Will historical data be omitted during carve out? If so will it have any legal ramifications? Is it critical for resolving open customer billing disputes?
Formulating TSA (Transition Service Agreement): Who will provide operational/ applications support and perform business critical changes during TSA period? What is the Exit clause?
Knowledge Transfer: Are business process documents and application system documents available? Will the parent entity provide knowledge transfer to the new support vendor?
Infrastructure: Can the new system be On Cloud? What is the bandwidth/connectivity, back up strategy, and business contingency planning?
Change Management: Due to change in business model and size there would be a need for new security roles, release strategies in procurement and modified workflows. Are business users of the carved out entity ready for this?

Oil & Gas companies can reap many benefits from this holistic approach to M&A that covers complete technology integration along with a financial focus. For instance, ITs role in formulating the TSA will protect the interests and ensure sustainability of the new entity. They can also select the SI/ AMS partners at an early stage to help in early adoption to new processes. Moreover, discussing and resolving the above mentioned areas early on will help lower the total cost of ownership for the new entity as well as ensure that Business users and external partners are better prepared to adopt quickly.

What are your thoughts on ITs role in a successful M&A? Do share your thoughts below

About the Author

Ramakrishna Avasarala Ramakrishna Avasarala has about 25 years of experience in the Oil & Gas industry. Of this, Ramakrishna has spent 14 years working on SAP projects with Global clients in consulting and project management. Currently, he is part of WIPRO’s CoE for SAP Solutions for downstream clients.

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