There is limited time and access during M&A due diligence. Knowing this, it is critical to focus on the high priority areas with the largest affect on risk.
As we discussed in our previous article, “Due Diligence for Mergers and Acquisitions – Why include IT“, technology due diligence is a critical part to evaluating a merger or acquisition. The less time spent the higher probability of extended integration or other issues. We now discuss which parts of IT due diligence to prioritize in order to minimize risk.
- If the organization you are acquiring has proprietary technology, evaluating the personnel is critical as they support the technology. With proprietary software, it is difficult to find external resources who can quickly take on support.
- If you intend to integrate staff into your IT area, what is the IT culture? Are they IT “cowboys”, or do they follow IT best practices? If you use Windows systems and they use open source software, there can be some real challenges if the personnel are “evangelists” for their system and philosophy.
- If you plan to convert systems to newer technology, what is the likelihood of getting them re-trained? If it’s not high, consider the ramifications on the customer base – the IT staff sometimes has the only knowledge of special customer-specific programming.
- Are processes documented? Imagine trying to unravel tens or hundreds of programs that are no longer supported by the vendor. If the top ten clients all have special processing that only one or two staff know how to accomplish, retaining those clients is suddenly a serious risk.
- Are contracts documented? If you are closing or changing facilities, are there any related contracts with cancellation penalties?
- Does the organization have a matrix and back up showing licenses purchased to licenses used? If not, it doesn’t necessarily mean there is a large liability there – but it may.
- Are you acquiring outdated servers? Laptops or PCs? Based on how you operate, do all users have the equipment you need, or will a large purchase be required? One company bought another assuming the data center could be used as a back up to its primary data center. It turned out all the servers were built from scratch without warranty, and outdated.
- Does the organization you are acquiring have custom-developed software? If you are considering using it, have an outside specialist evaluate it – its design, reliability and flexibility may impact your decision.
- Does the company have multiple systems with customer information? Do they have interfaces? If systems require manual updates, it’s actually simpler to migrate the information to new systems.
Review your planned integration strategy from all levels – sales, marketing, HR, finance, facilities, etc. – understanding the impact on IT and systems. Will technology due diligence change whether or not an acquisition or merger makes sense? It may not, but it could very well change the payback period, and the post-acquisition strategy.
Once you are in the middle of integration, missteps are costly and time consuming. Better to be as educated as possible up front.
About The Guest Author: Laura Pettit Rusick helps CEOs optimize IT to support growth and change in small and mid-sized organizations. Her company, OPT Solutions, provides IT Evaluations, Software Selections and Retained CIO services to enable growth, reduce costs and increase productivity. Sign up to receive the PDF “Ten Critical Success Factors for Optimizing Business Processes“.