Cost optimization - Mergers and Acquisitions Lens

Cost optimization

The acquiring company needs to conduct thorough due diligence to understand the seller's costs and identify potential cost savings opportunities. One of the rationales for mergers and acquisitions is to achieve cost synergies through economies of scale. Pre-deal due diligence often does not uncover all sources of redundant costs. Integration provides an opportunity to identify further areas of overlap and cost-cutting through combining operations and standardizing procedures. Higher integration costs may mean lower returns and increased risk.

Cost consciousness is important to maximize value creation from mergers and acquisitions deals through both prevention of unnecessary costs and realization of synergy benefits. Managing costs during integration helps validate the business case for the deal and the projected returns to shareholders. It is important to optimize integration spending to deliver the cost synergies that supported the deal valuation. This lens provides guidance on cost optimization for a combined organization. It is especially critical while integrating systems that are on-premises, as data transfer and storage costs can increase due to an oversight.

Here are some key things to consider for AWS cost optimization during mergers and acquisitions integrations:

  1. Consolidate AWS accounts: After an acquisition, there are often multiple AWS payer accounts and it is beneficial to consolidate these into as few accounts as possible to simplify billing and management. This can help identify unused resources and optimize costs.

  2. Standardize infrastructure: The acquired company may have been using AWS in a different way with different standards. It is important to evaluate the two infrastructures and come up with a plan to standardize as much as possible. This could include standardizing instance types, using consolidated billing for discounts, or using common savings plan and choosing appropriate Regions. Review resource usage to determine how many Reserve Instances (RIs) or which Savings Plans (SPs) can optimize costs.

  3. Review and optimize resources: Once the accounts and infrastructure have been consolidated, review all resources in use to optimize costs. Look for unused EC2 instances, oversized instances, and orphaned EBS volumes. Optimize these as needed by rightsizing or removing unused resources.

  4. Monitor and automate: Use tools like AWS Cost Explorer to get visibility into costs and usage over time. Set up budgets to monitor for any cost anomalies. Use automation tools like AWS Cost Anomaly Detection to automatically detect unused resources or major cost changes. Use AWS cost application tags to reconcile charges as per requirements.

  5. Train resources: Train teams from both companies on best practices for cost optimization and governance. Share knowledge about how each team was using AWS and the best ways to reduce costs. Get everyone on the same page about how to architect in a cost-optimized manner.

  6. Continually optimize: Cost optimization is an ongoing process. Continue to review new resources for cost effectiveness, look for new discounts or programs from AWS to leverage, and make cost optimization a priority across teams. Small optimizations made over time can add up to major savings.