Due diligence is an organized method to analyze a company for acquisition via sale, merger, spin-off, carve-out, or other methods. The process informs the potential buyer about the company’s assets, liabilities, contracts, employee benefit, and operational capabilities. The process identifies key themes, risks, potential opportunities, and investment requirements, enabling M&A Leaders to make go/no-go decisions and refine offer terms and pricing.
A leading referral site for due diligence lawyers (upCounsel.com) advises the use of 19 due diligence categories spanning 211 topics:
| Financial Information (35 topics) | Customer Information (27 topics) | Employees and Benefits (23 topics) |
| Materials & Contracts (20 topics) | Product and Services (16 topics) | Insurance Coverage (13 topics) |
| Tax Information (13 topics) | Organization and Good Standing of Company (11 topics) | Intellectual Property (Trade Secrets, Copyrights, Patents, Trademarks) (10 topics) |
| Environmental Issues (9 topics) | Information Technology Concerns (8 topics) | Litigation (7 topics) |
| Antitrust and Regulatory Issues (5 topics) | Physical Assets 4 topics) | Revenue Streams (4 topics) |
| Licenses and Permits (2 topics) | Real Estate (2 topics) | Publicity (1 checklist topic) |
| Outsourced Professionals (1 checklist topic) |
While the above categories include essential details of finance, sales, employees, benefits, contracts, etc., note that only 8 IT topics are defined – mostly tasks to gather lists of hardware and software assets, identify IT vendors, the level of software customization, key interfaces, and presence of a disaster recovery plan.
In our view, this very limited scope and depth is completely insufficient to understand the target’s existing technology, processes, and staffing, and develop insight into how IT supports and can support the business.
Another interesting data point from January 2022 research by M&A specialists on Linkedin found that IT was not included a staggering 42% of the time in due diligence!
In comparison, ViTL’s approach to IT due diligence is markedly different. Depending on the client’s business and technology strategy, ViTL will recommend and tailor selections from 14 IT related subject areas (that can cover more than 1000 topics) to collect and analyze relevant facts and details. We provide actionable information and recommendations to enable the immediate start of integration planning after a “go” decision.
Many of ViTL’s new M&A clients (but not our repeat clients!) have no insight to the state of the target IT environment, and ask us to “complete the integration work ASAP and with minimal disruption”.
They are surprised that our initial “execution” activities include collecting the same information that IT due diligence could have provided months earlier, so that initial integration planning and even some execution activities could have been in-progress or even completed. Of course, some additional details and information must be collected post-close (ex: firewall rules or detailed configurations of each device that require tools to be installed on the target network) when hands-on access to the target environment is permitted.
Our M&A clients quickly learn (we teach and show them) that engaging us to perform IT due diligence delivers MANY important benefits:
- Obtaining a solid understanding of the target’s current/starting state and “day 1” risks – what platforms, tools, processes, support, security, data protection, devices, connectivity are in use? What needs to be done BEFORE we attempt connectivity or place the migration team on-site?
- Identifying “the technology match” between the target and buyer – Can some target assets be utilized? What will be the learning curve (and support needs) of target users as new applications, tools, and processes are implemented? The integration readiness plan can reflect the impact of the current state vs. the planned destination.
- Improving cost model accuracy from user counts, device types and counts, locations, IT staffing levels, use of service providers, etc.
- Improving the quality of the integration plan – What areas will need the most focus and resources? The plan anticipates needs and risks, and has well thought out mitigation options, priorities, and sequencing of integration activities – resulting in fewer “surprises” and more predictable integration execution.
- Enabling an early start to readiness planning and integration execution prior to close, speeding time to value. Many actions can be planned, started, or even completed before “day 1”.
If you have any questions about IT due diligence, feel free to contact us – we will be happy to share our experience and recommendations!
