In a time where businesses are more technology-driven than ever, one of the most vital areas of analysis prior to any merger or acquisition is the organization’s IT assets and infrastructure.
There are a multitude of reasons that point to why IT due diligence holds the weight that it does. The valuable insights you’ll ascertain for both buyers and sellers from this article will outline what to anticipate during the process. Additionally, you’ll be exposed to the pivotal role that interim executive placement firms play in driving successful IT due diligence initiatives.
IT Due Diligence is an in-depth analysis of the target company’s IT framework, including systems, processes, infrastructure, and security, to identify risks, synergies, and cost implications.
The process is critical, as it provides the acquisition entity with an overall view of the target’s IT portfolio and capabilities. This ultimately proves instrumental for negotiations and final decision-making purposes. For the company being acquired, undergoing IT due diligence helps pinpoint and resolve any issues that could impact the deal.
When embarking on the IT due diligence process, there are several components you can expect to encounter.
This step involves an inventory and evaluation of the target company’s IT hardware, such as servers, storage devices, networking equipment, and data centers. Assessing infrastructure helps determine the effectiveness of the existing setup and identify potential future needs.
Key questions to address in this step: Is the current infrastructure sufficiently supporting business operations? Is it compatible with the acquirer’s systems? Will any components need replacing? Are there more efficient systems available on the market?
The goal is to assess the current state, scalability, reliability, and efficiency of the IT infrastructure.
This phase examines the integration of human resources within the IT framework of the target company.
During IT due diligence, assessing the staff involves gauging how their competence and capacity support the IT strategy and broader business goals. This entails reviewing the qualifications and experience of key IT personnel, such as IT managers, system administrators, developers, and support staff.
Additionally, interviews may be conducted to capture the staff’s experiences and outlook. This aids in identifying weaknesses and uncovering potential synergies and areas for enhancement.
Another aspect of staff assessment involves analyzing IT governance and organizational structure. This includes evaluating roles and responsibilities within the IT department, reviewing reporting structures, and assessing the effectiveness of IT management processes.
Another key activity in an IT due diligence checklist is documentation review, which involves evaluating various IT-related documents to understand the target company’s IT environment, contractual obligations, and policies and procedures. These documents include technology inventories, network diagrams, system architecture documents, security policies, disaster recovery plans, and any relevant contracts or agreements with vendors.
Analyzing the IT department’s standard operating procedures (SOPs), key performance indicators (KPIs), and performance reports can help to assess the effectiveness of current practices.
Protecting company data is paramount. It is crucial to examine the cybersecurity protocols and procedures implemented by the target company to prevent breaches and malicious attacks.
This involves:
Preventing future vulnerabilities goes a long way in securing the buyer’s investment.
Evaluating the target company’s technology roadmap, upcoming projects, and investments in emerging technologies is crucial for assessing its potential for growth and innovation. This information helps to make informed decisions regarding the IT compatibility and potential synergy between the two companies.
It’s also important to determine if these plans align with the goals of the acquiring company.
The due diligence team will identify IT-related risks associated with the transaction and develop strategies to mitigate these risks. This may include addressing post-separation impacts on IT, such as scalability issues, operational reliance on the seller, and protracted technology integration.
For a comprehensive understanding of the target company, findings from IT due diligence are evaluated and cross-referenced with other critical areas such as financial, HR, and operational due diligence.
This holistic approach unveils interdependencies across various business domains, creating a stable foundation for informed negotiations and strategic decision-making.
Choose a provider with seasoned IT experts who are knowledgeable in IT standards and a diverse array of technology stacks. Their extensive IT expertise ensures a thorough analysis of the target company’s current IT state, evaluating its sufficiency in aligning with business objectives.
An experienced provider makes IT due diligence easier. They’re familiar with common vulnerabilities, adept at conducting tests without causing disruptions, and excel in clear communication and reporting. Additionally, they can assist in selecting appropriate technology vendors.
Mergers and acquisitions are a legal-intensive process. An IT due diligence provider with expertise in IT can assist by:
Assess whether the due diligence provider has the resources to accommodate projects of varying sizes. Can they deliver large-scale due diligence projects within specified timelines?
Consider a firm that can offer strategic IT leadership to guide you through the critical post-transaction activities such as assistance with integration planning, risk mitigation strategies, or interim leadership services.
White it’s essential to keep spending on due diligence within the designated budget, it’s equally important to prioritize value. Focus on finding a firm that offers high-quality services and delivers meaningful IT insights that can help inform investment decisions.
With an average transaction value of $166 million, it is clear that mergers and acquisitions are big investments that need protection. Without proper due diligence, an expected asset can quickly turn into a liability.
Hartman Executive Advisors’s team of IT leaders can help you mitigate the risk of losses with our thorough IT due diligence and CIO leadership services. Backed by industry-leading experts, we offer an all-encompassing approach to ensure successful deals, both pre-and-post transaction.
Request a free consultation to learn more about how we can help.