When two housing providers decide to join together, whether through merger or acquisition, the goal is to become a provider that’s better than the two could be working alone. There is a ‘one plus one equals three’ aspiration that should be good news for the providers and their residents.
Ensuring the right technology solutions are in place post-merger is absolutely vital in achieving this. Investments in technology have driven improvements in service delivery and cost efficiency across the social housing sector, and that direction of travel can continue through mergers.
Finding value in technology
There are broadly three types of technology a housing provider needs to consider in its merger activities. Back-offices systems which provide the essential financial and administrative tools, and outward-facing systems used by both tenants and staff are two of these. A third category of technology, often based around the internet of things, and possibly not even in place at the time of merger, also needs to be in the mix. This fast-developing area has huge potential for housing providers, not least in supporting independent living. Those without a solution now may well have ideas on their three to five year plans.
It is crucial that the relative value each organisations’ technologies could bring to the new entity is properly understood so that right selections are made between using existing solutions or acquiring new ones. The requirements around this are complex because the value in technology doesn’t just come from net book value. It’s also found in less quantifiable areas such as individual expertise and, where technologies are used by tenants, from their judgements about usability, scope and relevance.
Value can also come from the newly-merged organisation’s aspirations for its future self. Technology, particularly in the form of tenant-facing and IoT-based possibilities, can be significant even where it is not yet tangible. So, calculating best value is about much more than doing the sums, and not all of the work can be completed pre-merger.
There’s a very significant risk that failure to explore the full value of technology can lead to a merged organisation which doesn’t live up to expectations, and this can have serious financial consequences.
Post-merger integration – a game of two halves
The pre-merger due diligence process doesn’t always allow the true value of technology to emerge. It’s particularly difficult to drill into the value that users (both staff and tenants) create and contribute. For clear and understandable business reasons, organisations such as BTD, which help housing providers and others complete successful mergers, only have access to a subset of staff and data during the due diligence process.
It is vital though, that a post-merger integration plan is created ahead of doing the deal. The same data that the lawyers and finance specialists use for their part of the due diligence process can contribute to this, but the starting point is different. Data is examined not only from the point of view of raw value, but also for the clues it provides about what is seen as important about technology systems pre-merger, and the expectations of life post-merger.
For example, one of the merging organisations might highly value its tenant management system’s user-friendly interface. It might resist other systems, even if they are less expensive to maintain, because they are not as easy for tenants to use. If a range of bespoke add-ins has been developed, the issue is exacerbated. However, our experience tells us this kind of value can be lost in the due diligence process. It’s not unusual for top-line analysis to simply conclude that the less expensive option delivers greater value.
Relying only on standard financial and legal due diligence can lead to ‘delusional optimism’ about the value of the merger in the eyes of the decision-making team. It is why those clues and pointers gained from pre-deal analysis need to be explored further after the merger. Indeed, the second, post-merger half of the process, is arguably the more important one. With full access to staff, it is possible to use workshops, interviews and other techniques to understand the cultural value in technology systems and to come to a more rounded understanding of where the best value lies.
Slow and steady wins the race
There is no need to rush technology integration. While some aspects of an organisation’s working need to be addressed immediately post-merger, such as branding and communication strategies, it is possible for others to run in tandem. There are some scenarios where BTD has advised clients to run technology systems in tandem for over a year or more.
This allows a deeper understanding of how systems really function to be developed, and to understand their cultural as well as financial value. It is only now that we can really see the value of those bespoke add-ins, for example.
There is another element of value in technology that may only show itself post-merger, and it aligns very well with IoT applications. Let’s call this ‘aspirational technology’. We know there are some very exciting applications of IoT for housing providers, for example to help with health and wellbeing by checking that residents are moving around their homes. But at the moment these are relatively rare in situ.
While many housing providers are excited at the prospect of what IoT offers, there are plenty of reasons they might hold back on its implementation. Lack of technical expertise, a wish to see successful examples up and running to learn from others’ experience before taking the plunge, and a lack of certainty over costs are just three. A merger is the ideal opportunity to make time and space for thinking about a future that can truly take the housing provider to the next level. Identifying skills across both organisations could be a great way to foster cultural integration too.
One plus one can equal three
The need to improve housing supply and affordability will drive ever-greater consolidation across the sector. To get the best outcomes for both providers and their residents, it’s vital to ensure that best value is obtained. That’s not just about minimising costs – indeed best value might actually cost more – it’s about cultural value too.
A well-developed post-merger integration plan, which has its roots in due diligence and its branches and leaves in post-merger work, will identify the true value of technology, and help the new organisation make the right long-term decisions.
Dr Ruth Murray-Webster is a senior associate at BTD.