The need for business intelligence and what we mean by it…

Posted on Thursday, 19 April 2007. Filed under: Business Intelligence, Commentary, Mergers |

As we have written in our forthcoming book, there is an urgent need to improve the M&A process through the use of business intelligence techniques.  Just to be clear at the outset as to what we mean by the term ‘business intelligence’, we show here part of the introduction to that book:

In the realm of corporate activity, mergers and acquisitions (‘M&A’) have played a defining role in shaping the corporate landscape over the past century. Given the breath-taking pace at which M&A transactions transform corporations and the sheer scope and scale of modern-day deals, it is no surprise that the work of investment banks and corporate finance boutiques alike has come to dominate the headlines. Yet, for all the bravura of M&A, such transactions also carry a high degree of risk as a result of the premiums paid and the organizational upheaval caused. The lament heard after most failed deals is that certain elements were not known, indeed it will often be claimed that they could not have been known.  Any intelligence specialist will tell you that all things are knowable — it is merely a question of how badly you want to know and how hard you are prepared to work to acquire that informationexplain that everything can be known.

For definitional clarity, when we talk about `business intelligence’ (often called ‘competitive intelligence,’ particularly in the US) we are referring to the `business intelligence function’ not the hard and soft information systems which have identified themselves as `b systems.’  The function itself (sometimes called ‘corporate intelligence’) is a vital aid to managerial decision making in any industry and at any time. By furnishing companies and other organizations alike with detailed and timely information about the commercial and competitive environment, the ‘art’ of intelligence enables companies to determine more accurately where they have been, to orientate themselves in the present, and to plan for the future.

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6 Responses to “The need for business intelligence and what we mean by it…”

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Interesting and topical subject. I work in the private equity industry and we are increasingly looking for M&A opportunities to add upside to our returns through both revenue cross sell and cost synergies. However M&A is not straight forward. A recent study by McKinsey concluded that only 30% of M&A achieved 90%+ of anticipated revenue synergies and 60% of M&A achieved cost synergies anticipated. in software (an area in which i spend more time), the stats were 0% for revenue and 50% for cost synergies (smaller sample size but directionally accurate as can be complex). I look forward to reading the book and blog for best practises on achieveing these revenue and cost synergies…..

An interesting topic might be the differing uses and applications of business intelligence towards a particular M&A deal where have the bidder being a combination of a financial buyer (a Private Equity player(s)) and a strategic buyer bidding together and jointly for an asset.

Such examples are very common in Australia right now e.g. Wesfarmers (a conglomerate), PEP and Macquarie Bank (and possibly also Woolworths?) bid for Coles Group, KKR JV with Seven Media and CVC Asia Pac JV with PBL Media.

A relatively safe hypothesis for your consideration:
Good business intelligence will be highly correlated to having lots of good subject matter experts hovering around a deal. Qualified subject matter experts will bring tightly focused questions centered on key industrial/cultural specifics. In short they’ll know what to look for and where to look for it.
So for me an interesting line of discussion is to what extent and when buyers should engage internal or external SMEs in a M&A context.
Despite their usefulness, maintaining a standing army of subject matter experts on staff is hard to cost-justify except in the largest organizations.
Strategic buyers have a fundamental advantage in this regard when they do deals within their industry. By definition they bring lots of SMEs to bear. Equivalently they should struggle to do deals outside their industry. They may also struggle on the deal-making side, but that’s another blog.
In contrast, financial buyers are geared differently, and typically can’t (or don’t want to) maintain large SME staffs. They solve their SME shortage through narrow industry focus, or through spot contracting of industry experts / consultants to solve a particular problem.
If my hypothesis is worth investigating, a series of interesting follow-up analyses might measure deal success vs. use of external consultants; deal success vs. type of buyer; intra- vs. inter-industry deal success by strategic buyers; deal success by focused vs. generalist PE/VC firms; relative cost structures of in-house expertise vs. external consulting expertise.

It differ from bank to bank, megrer to megrer. For example Citigroup megrer made it congolomerate resulting in offering more product at lower cost with wider network whereas PNB megrer with NBI made PNB itself sick resulting in eroding networth of the PNB shareholder and customers.Again at same time Big bank may sometime became little less argile resulting in degradation of service.So it depends on how it executed, what kind of synergy is there in megrer and accordingly it will depend on the effect on the consumer.

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