Mergers and Acquisitions: Achieving Cloud Cost Synergies

Research shows that the momentum for capturing cost-reducing synergies in a merger or acquisition wanes 18­­–24 months after the deal closes. The cloud can help in this post-deal race against the clock. Below we provide several examples of how AWS can help you achieve cost synergies through deriving economies of scale, eliminating duplicative costs, outsourcing IT tasks to AWS, and simplifying paths for IT procurement and modernization. These cost-saving techniques don’t necessarily depend on all parties being in the cloud—they can work even if the company you’ve acquired isn’t in AWS or if it works with multiple cloud providers.

Think of post-merger IT integration as an exercise in adding fractions, with AWS as the common denominator. Because of its scale and the breadth of the AWS Partner Network, AWS can likely find common ground even for your unusual integration challenges. AWS has designed easy ways to integrate systems in the cloud and with systems that are still on-premises. And AWS also provides FinOps tools and best practices to identify and implement cost-saving initiatives across your varied systems and applications.

The cloud provides a number of advantages in realizing post-deal IT integration synergies. It accelerates integration by providing the agility to create and scale your applications within moments. It helps you standardize IT infrastructure and applications across companies by providing uniform services within a Well-Architected framework and consistent security controls. AWS’s services are fully managed, reducing the burden on your organization and your post-deal IT staffing costs. The AWS network is global and resilient, making integration easier even if the companies operate in different geographies. And AWS’s pay-as-you-go approach makes it easy for you to experiment with little risk—if a project fails to realize business value, you can simply shut it down.

Here are some specific examples of how the cloud can drive cost synergies:

Data Center Consolidation

Acquirers can often consolidate data centers and slash administrative and overhead costs. Although you must account for existing leases, your hardware refresh cycle, and your licensing costs, moving an acquired data center to AWS— either as is or with targeted modernizations in the process—can eliminate duplicate spend and let you focus on activities that deliver competitive advantage.

Data Storage

Even organically grown companies face challenges unifying disparate and siloed data sources to unlock the power of analytics and AI. The challenges of accessing data in a company targeted for acquisition are even greater. While your initial focus might be on driving revenue synergies, consolidating data can also be an important source of cost savings. AWS’s storage service, the industry leader for hosting large-scale data lakes, offers tiered pricing and tools that automatically shift infrequently accessed data to less expensive tiers, providing cost savings at scale.

Database Modernization

The urgency of realizing cost synergies might preclude you from full-scale database modernization—i.e., moving to AWS’s managed, license-free databases. However, even simply rehosting license-based Oracle and Microsoft databases or open source systems you have to administer yourself to AWS’s managed database services can save database administration costs while opening the door to future cloud-native modernizations, including the hosting of databases on AWS servers built with proprietary cost-efficient chips.

Governance and Security

Once you acquire your target company, you face the challenge of unifying its security and governance controls with your own. AWS offers standards-based security, governance, and compliance frameworks and tools to assist, as was demonstrated in the merger of WarnerMedia and Discovery, when WarnerMedia used AWS capabilities to systematically apply its controls and security policies to Discovery’s AWS infrastructure. When you move to the cloud, AWS assumes responsibility for the cloud’s security and compliance (though you are still responsible for your workload’s security in the cloud), thereby reducing the burden on your organization as you begin integration.

End User Computing

AWS’s end user computing solutions, including Desktops-as-a-Service, application streaming services, and secure web browsers—all available on demand—can provide critical IT agility during the staffing reorganization triggered by an M&A transaction. They are a fast way to provide employees with secure access to a common set of business-critical applications while a broader IT integration occurs behind the scenes.

Volume Discounts

A simple way to realize acquisition cost synergies is by adding the target company’s core IT usage—storage, compute, and databases—to your own in the AWS cloud to take advantage of volume discounts. Many AWS services offer tiered pricing, with lower unit costs at higher volumes. You can reduce costs further by covering predictable compute and database workloads with Reserved Instances and Savings Plans. See this blog post on strategies for consolidating AWS environments for details on how to fold an acquired company into an existing AWS account structure. Finally, don’t overlook the fact that your expanded AWS footprint may qualify you for advantageous private pricing.

Simplified Procurement

Consolidating your procurements within the AWS Marketplace can save your teams time and money. AWS Marketplace is a curated digital catalog of third-party software, data, and services that allows for one-click purchasing, centralized billing, and standardized contracting terms. It can greatly simplify and shorten your procurement cycle, reduce the uncertainties of dealing with unknown sellers, and deliver AWS- and volume-driven discounts.

Contact Centers / Telephony

Many companies shifted their on-premises contact centers to the cloud during the COVID-19 pandemic era. Amazon Connect, AWS’s cloud contact center service, offers fast launch time, ease of use, low on-demand cost, and scalability. It is an ideal way to consolidate a redundant call center acquired during acquisition. Since an Amazon Connect call center can be up and running quickly, it is an excellent candidate for early realization of post-integration cost synergies.

The cloud can help you realize synergies quickly in a merger or acquisition before momentum wanes or the financial markets price the acquisition as a failure. For further information and strategic support with your M&A Cloud Strategy, we invite you to reach out to AWS’s M&A Advisory team.