How do you merge two “cooperating” companies, when their ERP and IT systems are ancient?

Ensunet helps its PE client to position the new entity for 5x growth

Picture this scenario if you’re a respected global private-equity (PE) firm:

You’ve got two companies, both in business for more than 50 years. They compete in the same realm, as manufacturers providing a crucial component to makers of consumer packaged goods (CPG).

Over the years, these two companies have seen that they could work better together. So they’ve forged a level of cross-ownership and cooperation.

Sounds like a no-brainer if you’re the PE, right? Seems like this deal would require more paperwork than equity infusion or deep IT due diligence.

If only it were that simple.

The future-proofing challenge

As part of the PE’s due-diligence process, they sought synergies in back-office operations between the two companies.

This is where Ensunet came in. We were called upon to handle the crucial IT side of the due diligence, to see how these two companies shaped up in their as-is states—and what would be required to not merely merge them into a single entity, but to poise that new entity for increased levels of service, vertical integration, and cutting-edge technology. In other words, this wasn’t a one-off. It was a plan to create a platform for additional acquisitions in the future.

As you can guess, that takes a lot more than scrutinizing the back office of each company. It requires a forward-looking strategy that will maximize capacity at the lowest possible cost, without compromising functionality or security.

There were lots of moving parts here: enterprise IT, ERP (enterprise resource planning), financial/accounting (and reporting), and lots more.

The first step was to see who was running what.

Dueling back offices

Given the travel restrictions of the pandemic at the time, not to mention the strict confidentiality required during due diligence, Ensunet conducted its investigation of the two target companies by phone.

What we learned was sobering. Here were two respected companies, churning out tons of product to lots of well-known brands, but their technologies were old, outdated, inefficient, and incompatible with one another.

Here are some of the unsettling details:

• Both of the companies still had PCs running Windows 7. Microsoft abandoned that operating system back in early 2020. That means no more updates, and compromised security. The “financial platform” was merely QuickBooks.

• Windows 7 appeared downright modern, compared to the DOS-based system still in use for their shipping application. There was also a legacy mainframe running Unix.

• Practically everything was manual. The companies had, for example, scanners, but then they’d need to manually enter the information into their legacy ERP systems. Printers, labeling, you name it—everything was manual, and nothing was integrated.

By the way, all of their IT services were outsourced. They didn’t have any expertise or management in-house.

It was time to change all that.

A hybrid roadmap

Big picture: Ensunet helped the new entity to envision a new in-sourced/outsourced hybrid IT model, effectively standing up a new IT department to manage the operation and its associated vendors.

This required some deft headcount-balancing, to ensure congruency between production and the new IT department. This department would be run by a new IT Manager/Analyst, whose roles would include enterprise and custom application support, as well as IT infrastructure and security.

Remember all those creaky, vulnerable, un-integrated systems we’d mentioned previously? We helped this PE with a complete IT roadmap, spanning about six months, to upgrade all of this.

On the ERP side, we conducted a competition among four different vendors, down-selecting the group to two, and then one. The new solution will be cloud-based, running on AWS. Finally, everything will “talk” to everything else, with automation baked in at every step.

Similarly, the enterprise IT is moving to the cloud; we’re also introducing business intelligence to report on financials and plant metrics.

A better bottom line

Prior to the merger, these two confederated companies were doing about $50 million in business. After the merger—and thanks to the new IT roadmap—they’ll be poised to do about $200 to $300 million in business, a five-fold increase. Even better, they’ll have the capacity to acquire more businesses and integrate them successfully, paving the way for even more growth.

Ensunet has supported IT for billions in pre- and post-merger activity. If you need help with this crucial challenge, download our free M&A IT Playbook & Integration Checklist. Or contact us today for a no-obligation consultation with one of our friendly subject—matter experts.