Technology and mergers: Getting the strategic applications

30 May Technology and mergers: Getting the strategic applications

Technology plays a key role in mergers and acquisitions, yet many organizations overlook the technology infrastructure when conducting due diligence and making strategic investments. My advice is you better know the technology and network infrastructure and how it either helps or hurts the long-range strategic goals of the organization.
The current dilemma of what makes more sense – the Chicago Board of Trade (CBOT) getting picked up by the Chicago Mercantile Exchange (CME) or by the Intercontinental Exchange (ICE) – should be looked at from a technology perspective, and not just an immediate stock price perspective.
There are some shareholder groups that want the ICE deal for the CBOT because it offers more money upfront, but the real synergy for growth is with the CME. In other words, if ICE buys the CBOT, the shareholders better cash out quick because there is limited synergy on that merger and they will ride the accelerating downward vortex that hogs usually do in the world of bull and bear trading.
Technology tsunami awaits
Back on Aug. 4, of 1998, my letter to the Editor of the Wall Street Journal was published, stating in part:
In response to your article on the possible merger between the Chicago Board of Trade and the Chicago Mercantile Exchange (July 13): It is not as easy as some make it out to be. The merger of their communications-based information systems infrastructure should be thoroughly reviewed and not be taken as a small task in the shadow of a great merger.
This oversimplification of the impending technology issues is common among those who believe they have “all of their bases covered” when it comes to managing and applying technology. This includes some consulting firms that have no clue when it comes to really understanding the strategic application of technology to business.
Merging the two exchanges should be viewed from not only a political, organizational, and economic standpoint, but also from a technology standpoint.
Bad mix
Both institutions had very disparate IT infrastructures at the time that would not have mixed well. Not merging at that time was the right decision. Now, many things have changed and there is some common sharing of functions between the two institutions that would probably make a good synergistic organization.
It is a shame that in nine years there are still many who don’t understand the relevance of technology and network infrastructure. If you do not have the right platform or any platform for your applications, you just are not going to be a competitor, let alone a market leader in the global economy.
The CME has its act together on electronic trading and how to do it with GLOBEX. GLOBEX is a key platform that the CBOT products could be put on immediately if the CME takes it over. What does ICE really have?
Who really benefits of ICE buys CBOT?
Some that want the deal to go through with the CBOT and ICE are looking at a sweeter deal upfront in the immediate timeframe, but are either unaware or do not want to acknowledge that the long-term would be a disaster.
Why a disaster? What does ICE really offer as far as infrastructure platforms to get the CBOT out into the electronic market? What is their strategic plan? Have they really mapped out a winning architecture?
Some say it is the CBOT traders that are pushing for the merger with ICE, but that really isn’t the case. When you look at the numbers, what they want really doesn’t matter. Who owns the most amounts of shares at this point? Is it the floor traders and seat holders or the large institutions?
It might be better to some large institutions that would not want the financial spotlight to shift to Chicago if the CME got the CBOT. They would rather see ICE get the CBOT and if it fizzles later, so what?
The merger of the Chicago Mercantile Exchange and the Chicago Board of Trade could be very good, if people would let it happen. Instead, there are contingents of groups that think they understand the total picture. They don’t. They understand short-term profits and initial stock prices but are clueless as to long-term business strategies.
Dumb diligence
So many boast of performing due diligence on big deals like this and how they have so many “fool-proof” methodologies. Their methodologies seem to gloss over technology issues either because they either don’t see it as important, or they just don’t understand technology and would rather skip over it to make more of a traditional analytical assessment. I would call that “dumb diligence” because they are missing a key factor in their review.
These are the same people that thought Iridium from Motorola was a “safe-bet” and gave the nod to pour billions of dollars into a product that was overpriced and had to be taken outside to make a phone call.
No one seems to take credit on that mega-blunder, yet many saw billions of dollars lost on a sure thing touted by the analysts. Is the CBOT decision the next mega-mistake for the pension funds?
CARLINI-ISM: Know critical technology and network infrastructure, or no technology and network infrastructure will be your ultimate demise.
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