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A business strategy of growth through mergers and acquisitions can be fraught with challenges if improperly planned and managed. A century of practical experience has allowed Atmos Energy to refine the art of M&A. Within the past two decades alone, 10 acquisitions were completed, and the pace has been increasing. There were only 20 months in the past nine years that we were not working on an acquisition.

The most recent acquisition of TXU Gas Company effectively doubled the size of Atmos Energy overnight, helping to launch the company into the Fortune 500 for the first time. Incorporating 1.5 million TXU accounts into our already massive customer base posed significant challenges – not the least of which was assimilating TXU’s data from 128 different systems into our much leaner technology infrastructure.

Atmos Energy’s software selection, efficient integration strategy, and standardized methodology eased the burden, minimized the costs, and accelerated the acquisition integration – and left the door open for future growth.

Balancing Act

Atmos Energy’s vision has been focused on being one of the largest providers of natural gas distribution and related services. The utility aims to be recognized for excellent customer service, as an employer of choice, and for achieving superior financial results.

Customer care is the focal point of the utility, and everything is done ultimately for the benefit of our natural gas customers. Growth through acquisition is an important part of the corporate strategy. But, it tests the ability to sustain optimum levels of customer service; and the time, cost, and complexity of integration threaten customer focus.

Simultaneous to these customer service challenges, Atmos Energy is subject to external dynamics that contribute to business volatility. We lost customers due to Hurricane Katrina, we had an unseasonably warm winter, and higher natural gas prices are causing customers to conserve. Less natural gas is being consumed every year, partly because appliances and buildings are more fuel-efficient, and partly because electric alternatives to traditionally gas appliances are gaining in favor.

Such factors can have a negative effect on net income as well as customer loyalty, and excessive acquisition costs and complications would only exacerbate the situation. Accommodating both corporate and customer needs while also minimizing costs is a constant and delicate balancing act.

As CIO, my job was to apply technologies that address these types of business challenges, while enhancing customer service, driving costs out of the business, and running our operations more efficiently. Proactive marketing, complex billing, purchase contracts, customer self-service, and other growth strategies are facilitated within the utility’s systems, providing the flexibility and creativity needed to respond to changing market conditions.

With technology becoming cheaper and manpower always expensive, the case for automation has become more compelling. As a result, Atmos Energy uses software that automates many customer service processes. The utility is a big user of wireless communication, with wireless terminals in service trucks and construction vehicles. I also believe automated meter reading will become more widespread in the utility business.

But, by far the greatest challenge has been assimilating thousands, and more recently millions, of newly acquired customers. Rapid expansion through acquisition has been most demanding. Again, technology has been the key to overcoming this challenge and allowing Atmos Energy to thrive in the competitive marketplace.

Integration’s Cornerstone

Mergers and acquisitions expand a utility’s revenue base and provide synergy savings, but M&A success is not assured. It requires proactive risk mitigation and an IT infrastructure that supports the corporate acquisition plan. It necessitates a solid understanding of priorities and critical success factors in order to effectively blend the new people, assets, and processes. Furthermore, the transition should be transparent to both current and acquired customers.

To facilitate the Atmos Energy acquisitions from an IT perspective, in 1996 we began to implement a strategy of companywide systems standardization. By 1999, we established a best-in-class technology infrastructure that is flexible, adaptable, and configurable. Our standard assimilation platform is able to support a vast customer base with room for unlimited growth, and it allows for smooth, low-cost integrations.

The premise of our IT infrastructure was to keep it simple. I believe very strongly in vendor minimization and architecture simplification. Therefore, Atmos conducts all operational processes on one suite of applications: Oracle’s ERP, MDSI for dispatch, ITRON for meter reading, and Indus Customer Suite to manage customer information and billing.

The customer billing software is at the center of the systems architecture because, for a utility company, that’s what’s most important to us. We must be able to bill our customers accurately and on time. We chose a system that would allow our company to provide outstanding customer service, while also meeting IT’s strategic requirements.

Indus Customer Suite provides high usability and a comprehensive view of all customer information for call center representatives. It allows better communication and task automation, and it enables customers to pay bills, review accounts, and initiate service requests online. Furthermore, the software can handle a complex array of business processes in a multi-jurisdiction, multi-state environment. With this software we were able to improve overall performance, provide tangible cost savings, and sustain our rapid growth plans.

Using this software, we have standardized across our operating companies on best business practices that accommodate our regulatory and geographic diversity. In addition, we have adopted a standard template project plan that provides a proven path for dealing with the staffing and operational challenges posed by acquisitions. Our strategy of IT standardization is allowing us to achieve millions of dollars in savings.

Practical Strategies for Acquisition Success

Following is a summary of the specific IT strategies that have allowed us to welcome acquisitions and mitigate associated risks:

Consolidate IT: Maintain an intimate knowledge of the IT infrastructure in order to effectively accommodate expansion plans. Although acquired companies may operate as their own business unit, the IT function should remain consolidated. Centralized IT strategies and practices can minimize acquisition risks and expedite synergy savings.

Architectural Foundation: Establish a common architectural platform that is centered on sophisticated, functionally robust applications. Make sure the systems are sufficiently scalable in order to avoid performance degradation and capacity limitations. Such a foundation reduces technology ownership costs, streamlines integration, and increases earnings capacity.

Service Framework: Implement consistent service processes across all territories and divisions, and automate field service and call center practices as much as possible. Process standards and automation enable superior customer service, reduce operating expenses, and increase profitability.

Process Optimization: Choose software that is flexible and configurable. It will allow you to continuously improve the way you do business without costly customizations. And, it will permit great ideas from acquired companies to be incorporated as a standard best practice. Each new acquisition opens the door to further process refinement.

Project Management: Split the integration work into manageable chunks that begin at or before deal closing. Carefully control the project scope and track issues and their resolutions. Provide ample time for user acceptance testing and practice data conversions. A well-defined integration methodology and a team approach will ensure that the project is completed efficiently – on time and within budget.

Fixed-price Contracts: Negotiate fixed price contracts when integration support is enlisted from business partners. The result will be a more reliable project budget.

Outsourcer Avoidance: Minimize the role of the acquired company’s outsourced service providers in the integration. Companies that utilize outsourcers tend to find that job insecurity causes them to be uncooperative, and they may resist giving up the business.

Positive Reinforcement: Reassure employees of the acquired company that the new system is the best available, and that your business practices are world-class. The new software will be easy to learn, and it will make their job easier to perform because they’ll have the right customer information at their fingertips.

The Proof is in the Pudding

We knew our mission for integration speed was accomplished when Mississippi Valley Gas was acquired in 2002. We produced bills for the new customers from our Indus application within two weeks of the acquisition closing date.

The true test of scalability at low cost came afterward with our largest and most recent acquisition. In 2004, we acquired the distribution and pipeline operations of TXU Gas Company, the largest natural gas utility in Texas. The purchase virtually doubled our company’s size and added 1.5 million customers to our base.

As an added complexity, TXU Gas operated 128 different systems. We had to consolidate employee HR records, financials, operations, and customer billing data for 1.5 million accounts from all TXU systems into our three core business systems. We were further constrained by a hard deadline.

This acquisition would be our customer information system’s ultimate proving ground. To verify its scalability, we benchmark tested the code well before the scheduled launch date. We successfully ran as many as 3 million customers simultaneously through the system, plus some online activity, at the HP laboratories in Cupertino, California. We completed the test again in-house prior to rollout.

In the end, the TXU integration clearly validated our IT strategy. We converted the customer accounts to our standard application infrastructure in record time and at a remarkably low cost. The conversion was completed across the acquired entity in less than 12 months. Our software, hardware, and labor costs per customer totaled roughly $15 – that’s about half the industry standard cost of $30-40 per customer.

Enviable Business Performance

Although Atmos Energy has completed several significant acquisitions and experienced tremendous growth and expansion, the company is no worse for the wear.

Atmos is considered one of the most efficient natural gas utilities in the industry, thanks to 24/7 cost management. We tripled in size in the last five years, but at the same time our staff grew by only 20 percent. We serve industrial, commercial and municipal customers, and manage $5.6 billion in assets, including more than 87,000 miles of pipeline.

Our employees keep productivity at industry-leading levels. We serve 730 utility customers per utility employee, as compared with an average of 511 customers per employee served by our peer group. Our utility operation and maintenance expense of $110 per customer in fiscal 2005 is also lower than our peer group average of $209 per customer.

Investors have been quite satisfied with our results. The company saw a 42-percent annual increase in revenues over the past five years, and a 70-percent increase year over year. Additionally, there have been 22 consecutive years of increasing dividends and consistent earnings growth. Atmos Energy is ranked No. 430 in the 2006 Fortune 500 with revenues of $4.9 billion.

Solid Vision

At Atmos Energy, the mission is to provide excellent customer service, to be the low cost provider, and to run our utility business exceptionally well. The company is likely to continue to grow through prudent acquisitions, and will continue to leverage technology as the principal means to facilitate assimilation at minimal cost.

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