Updated: Apr 1, 2020
There are many moving parts to an M&A transaction, and it’s not hard for the entire deal to be derailed by a simple misstep or overlooked risk. It’s no surprise, then, that a large percentage of deals fail to meet their objectives because of inadequate planning.
This is where IT due diligence can help. For acquirers, it’s essential to vet investments with deep due diligence. Companies can easily derive the risks and value of business dealings with the sharp eye of diligence experts.
While diligence services are a necessary step of every M&A process, investors need to know how to assess the technology function of the target. It’s not enough to simply glaze over technology systems with a stamp of approval; instead, the entire IT infrastructure must be dissected, diagnosed, and treated in order to guarantee reliability and scalability.
From a buyer’s perspective, IT due diligence provides a wholistic assessment of the company’s foundation and vulnerabilities. As with a home inspection, due diligence gives you all the information you need to make a good purchasing decision. Not to mention, due diligence uncovers the financial integrity of a business, helping sellers get the fair market value of their company.
IT due diligence reporting can be broken down into many different stages, but the main purpose is to define how the technology stack of a business is assembled, primarily digging into any potential risks, like bugs or security vulnerabilities, as well as technology disclosures, process documentation, adherence, misuse of software, license conflicts, poor implementation, and so much more. The overall evaluation is meant to paint a complete picture of the state of technology before the buyer and seller go into the deal cycle. This detailed portrait thus provides a comprehensive depiction of technology, letting investors know what surprises lie ahead and how to plan accordingly.
What to expect from your IT Due Diligence Report:
In the past, IT due diligence was done as a formality: just a simple step in the larger process of M&A transactions. Today, this mindset has changed drastically as investors are realizing the importance of technology and its evolving landscape. With increasing cloud adoption, big data, analytics, artificial intelligence, and all the changing regulations that come with these new elements, IT due diligence delves into these moving pieces to create a linear roadmap for investors.
In a typical IT diligence process, experts focus on these key areas:
· Aligning your Investment Thesis Goals: First and foremost, diligence experts must understand and maintain investment goals throughout the entire process. This ensures that important areas of the deal thesis are kept in mind. For example, in a merging scenario, the investment thesis might emphasize the impact and feasibility of combining technology stacks and applications to prevent potential synergies that might arise upon merging. Whatever the deal thesis calls for, it is crucial that IT due diligence embodies the broader goals of the investment in order to paint the full picture.
· Document Retrieval: To fully understand the entire IT landscape of a business, IT diligence experts must obtain all available documentation from the target. This is mostly accomplished through remote interviews or on-site visits with management to assess IT maturity.
· Evaluation of Technology Footprint: Once all the appropriate data is collected on the target, IT diligence advisors take a closer look at the digital ecosystem, particularly assessing business systems such as ERP, CRM, and HRIS, production systems and applications, disaster recovery, hosting setup, proprietary applications, software development processes, information security, and IT scalability.
· Assessment of Cybersecurity Posture: Once the initial IT assessment is complete, advisors can identify your company’s current security risks or IT problems, helping you address irregularities or inefficiencies. Rather than providing a cursory IT review, IT due diligence dives into information security so you know the severity of security breaches and their impact on business operations. Our deep review of cybersecurity shows you when security controls are underperforming and how resilient your backup, recovery, and disaster recovery processes truly are. This detailed assessment helps you introduce the right contingencies needed for the transaction to succeed.
· Reviewing Data Compliance: One of the most overlooked areas of traditional diligence services is data privacy compliance. IT diligence can identify numerous gaps in controls, which is especially important with the onslaught of new regulations such as GDPR. With an in-depth review, you can detect problem areas in proprietary applications and hosting infrastructure, preventing the exposure of sensitive data.
· Recommending the Right Steps: Inevitably, due diligence will uncover issues. The right IT due diligence will not only confirm your assumptions and identify surprises, but it also takes the first step in addressing and remediating technical and operational problems. For an acquisition to be successful in the long run, IT diligence experts expose where there may be real risk or loss and accordingly help you plan for the future.
A Portrait of Diligence
Get the complete technical picture with a due diligence report that examines acquisitions from all angles, from financial, legal, employee, and technical aspects. It’s no question that diligence is a necessary, important piece of every transaction puzzle, but what’s often missing is a full, deep look into IT infrastructure. Hold your transaction together with disciplined IT due diligence services and achieve total M&A success for the future.