Leveraging Microsoft Technologies to Enable M&A GrowthByChristophe DeslandesChief Information OfficerKapStone <br />
About<br />KapStone was started as a Special Purpose Acquisition Corporation (SPAC) for the purpose of building a domestic paper-and-packaging business through acquisitions.<br />Stated goal to grow to $2B - $5B range within 2-5 years.<br />
KapStone Today<br />2 Kraft paper mills+ 1 lumber mill<br />Headquartered near Chicago<br />Publicly traded on NYSE<br />± $800MM revenue<br />1,600 employees<br />IT team: 30 full-time, 39 FTE<br />
Initial Challenges<br />As of Jan 1, 2007:<br />$270MM business<br />No IT infrastructure of our own<br />18 months to migrate from seller’s systems<br />IT staff: 7 + 1 non-IT transition manager<br />Most applications already selected but no plan to integrate them<br />Challenge: traditional ERP model doesn’t fits well in a process industry<br />
KapStone’sApproach<br />Collaboration and Analytics Backbone<br />
Risk Mitigation<br />To facilitate system integration, we enforced the following requirements for our apps:<br />Windows®-based<br />SQL Server®-based<br />Active Directory authentication<br />Robust integration layer (BizTalk, SOAP or XML preferred)<br />For cloud services: SOAP/XML interfacing<br />Clearly define the process boundaries between systems<br />i.e. once a transaction becomes $$$, feed to ERP!<br />Maximize support from Microsoft<br />
System Integration Model<br />ERP<br />OE/MES<br />CRM<br />BizTalk<br />Connector<br />BizTalk<br />Connector<br />Text Files<br />Fiber<br />CMMS<br />XML/MSMQ<br />XML<br />XML<br />Rail<br />Lumber<br />XML<br />X12<br />BANKS<br />XML<br />EDI VAN<br />Bus. Activity Monitoring<br />All interfacing and integration is done through BizTalk Server.<br />We support a variety of formats.<br />Leverage BizTalk BAM to create self-service interface management portals for end users.<br />
What About the Front End?<br />Integrating multiple apps has many advantages:<br />Flexibility<br />No or little customization<br />Easy to upgrade<br />And one big disadvantage:<br />Multiple, loosely linked reporting sources<br />
Reporting Approach<br />Like most companies, we start with static reporting, but also…<br />Document the app’s data dictionary & build views<br />Leverage the static reporting work to build BI cubes<br />Involve the vendor in cube design (or use theirs first!)<br />Bring in experts to design cubes as needed<br /><ul><li>ERP/CRM must be system of reference
Common taxonomy is paramount!</li></li></ul><li>Our Journey into BI<br />ERP<br />OE/MES<br />Lumber<br />CMMS<br />Fiber<br />SSRS<br />PerformancePoint<br />1 – Started with static reporting – documented data dictionary!<br />2 – Built OLAP cubes for each app (or used vendor’s)<br />3 – All cubes are based on SQL/SSRS<br />4 – Support various reporting technologies<br />5 - Migrate to dynamic reporting in SharePoint<br />
Benefits of KapStone’s Approach<br />Cost competitive:<br />SAP: $5,537/user/year1<br />KapStone: $2,371/user/year2<br />Upgradable:<br />Little customization = quick, cost effective upgrades<br /><ul><li>Upgraded AX in under 6 months in 2009</li></ul>Any system can be replaced or upgraded without affecting others<br />Agile:<br />Ability to add new systems quickly<br /><ul><li>Added Avantis in 6 months in 2009</li></ul>Ability to integrate new acquisitions<br />Sources: (1) Panaya Inc. 2009 SAP® Support Practices Benchmark Survey<br />(2) KapStone 2009 ERP support budget exclusive of depreciation<br />
The M&A Market is Heating Up<br />“The volume of mergers and acquisitions grew in 2010 by 25%.<br />(…) A survey of top bankers (…) expect deal volume to increase by at least 15% in 2011 from the previous year.”<br />The Wall Street Journal, January 3, 2011<br />
M&A Challenges: 10 Things to Remember<br />Typical M&A challenges for IT:<br />IT isn’t always “in the loop”<br />Acquisitions are often behind on IT investments<br />Pressure to get off seller’s systems quickly<br />Pressure to consolidate financials & BI quickly<br />Don’t always know where IT growth will be<br />Manage Communication<br />Security is a big concern<br />IT must take the lead on non-IT activities<br />Must be compliant within 12 months<br />Acquisitions lead to divestitures<br />
1. IT isn’t always “in the loop”<br />Too often CIOs are not brought in early enough when a deal is negotiated.<br /><ul><li>Tell your Board and CEO that you must be brought in Day One.
Ask them if they’d want to know the true cost of merging IT asset before or after negotiating a price!
2. Acquisitions are often behind on IT investments<br />Businesses being sold tend not to invest much in IT!<br /><ul><li>Be ready to upgrade servers right away
Be ready to roll out new desktops (real or virtual) right away
Acquisitions are a good opportunity to get out of unwanted support contracts upgrade Day One!
Technologies to leverage:</li></ul>Hyper-V server virtualization, Terminal Services, desktop virtualization<br />
3. Pressure to get off seller’s systems quickly<br />In case of a divestiture, some apps may be running on the seller’s infrastructure.<br />TSAs are costly.<br /><ul><li>Negotiate rights to transfer licenses or run temporary instances
BizTalk, SQL Server, SharePoint</li></li></ul><li>5. Don’t always know where IT growth will be<br />What will grow the most: email? Storage? Transactions? Network? Apps? Desktops?<br /><ul><li>Buy yourself flexibility ahead of time with clustering:
Hyper-V consoles</li></ul>(you can have a 1-node cluster!)<br /><ul><li>Virtualize all other apps for easier migration to bigger hardware</li></li></ul><li>6. Manage Communication<br />Loose lips sink ships – and acquisitions!<br /><ul><li>People recognize due diligence when they see it
Make the case for delayed downsizing</li></li></ul><li>7. Security is a BIG concern<br />Security practices may not be up to your standards.<br />Some employees may be disgruntled.<br /><ul><li>Insist on antivirus being up to date as a condition of sale
SCCM, Forefront Protection Server Script Kit, Visual Studio TFS</li></li></ul><li>8. IT must take the lead on non-IT activities<br />Many non-IT M&A activities result in IT work:<br />merging COA<br />AP, AR, HR, CRM ETL<br />customer & item masters<br />If not coordinated, this results in headache and rework for all <br /><ul><li>IT PMO should volunteer PM leadership
Share your collaboration tools with the other departments
SharePoint, Hyper-V virtualization, MS Project</li></li></ul><li>9. Must be compliant within 12 months<br />Pick your poison: SOX, PCI, HIPAA, SEC, …<br />You’ll have at most 12 months for the new unit to be compliant!<br /><ul><li>Plan for robust and well documented integration, even if temporary
Implement Change Management, Access Control and Configuration Management policies on Day One
BizTalk Server, SCCM, Visual Studio TFS</li></li></ul><li>10. Acquisitions lead to divestitures<br />Acquisitions often lead to divestitures:<br />due to regulatory constraints<br />to finance M&A activities<br />for business alignment<br />Plan for future divestitures:<br /><ul><li>Have a methodology!
Virtualize divisional apps and integrate them through middleware to allow for easy decommissioning
BizTalk, Hyper-V virtualization</li></li></ul><li>Key Takeaways<br />Build a flexible infrastructure<br />Know your systems and know your cost structure<br />IT must take a leading role in M&A activities<br />Leverage your existing infrastructure to quickly and painlessly absorb acquisitions<br />