Outsourcing as Merger Preparation

Filed in archive Intelligence on July 30, 2008

Photo courtesy of iStockphoto, Stefan Witas

Ann All, one of my favorite writers on the subject of outsourcing, reported recently that companies "sometimes employ IT outsourcing to help prepare for mergers." For a number of reasons, this makes a lot of sense.

First, going through an outsourcing process forces a company to standardize its processes and procedures and codify them, and also oftentimes breaks the informal network within companies that define how things get done. While this may create operational downside risks, it also paves the way for the prospective merger by eliminating fiefdoms and obscure processes.

Second, if the prospective merger partners "happen" to use the same IT vendor, merging the services may prove easier than merging two separate in-house organizations.

Finally, since many outsourcing contracts have "exits" surrounding mergers, this approach may be a low-risk way to cut costs and streamline operations - e.g., begin taking "synergies" - prior to any public announcement of a merger.

It would be very interesting to see if anyone had sufficient data to correlate this assertion - e.g., look at recent mergers and see if any of their material outsourcing agreements commenced somewhat near the merger announcement. If so, it may be possible that we have a new "canary in the coal mine" viz a vie mergers and acquisitions.