7 steps for IT due diligence success in mergers and acquisitions

In far too many mergers and acquisitions (M&As), companies conduct only legal and financial due diligence — not IT. While it certainly takes less time and money initially to limit due diligence to a legal and financial perspective, the end result will ultimately cost the organization much more.

If we look at the overall process of one company acquiring another or of two companies merging, the importance of due diligence becomes clear. It is the key to achieving the following objectives, which are necessary for a successful M&A:

  • Implementing a smooth transition
  • Achieving a budgeted operating plan
  • Minimizing surprises (legal, financial, or operational)
  • Retaining key people
  • Mitigating or eliminating risk
  • Achieving identified opportunities

There are seven necessary steps to conduct effective IT due diligence.

Step 1: Initiate

Once the acquiring company submits a letter of intent to the targeted company and both parties agree to the basic terms, due diligence is allowed to commence. One of the first things the acquiring company will do is provide the targeted company with a due diligence request list. An IT due diligence request list should be part of this document.

Step 2: Prepare

Once you receive the information asked for in the due diligence request list, read through it to prepare for your on-site discovery visit. The better prepared you are, the more effective and productive you will be throughout the rest of your due diligence effort.

Step 3: Conduct the on-site discovery

Once you have executed the preparation phase, you are ready to visit the company and begin the interviews. Meet with the highest levels of management first. Once you are finished with the initial group of people, set up the next series of interviews as needed to complete your discovery process.

Step 4: Discovery defines the issues

As we work through discovery, we look for technology issues that have the four key attributes we need to be concerned about: stability, supportability, scalability, and cost. As we encounter situations that have any of these attributes, we list them as a technology issue, a technology or business risk, or an opportunity. Ultimately, our risk, opportunity, and issue items define the project initiatives we need to work on to address each situation. The priority of these items will form our transition plan.

Step 5: Analyze the information and prioritize your initiatives

Now that you have all the issues quantified, it is time to start putting some structure in place — a game plan, if you will. As you do this, you will find that a single project will often address many issues. So if you have a total number of 150 technology issues, risks, and opportunities, it may take only 50 projects to address them all.

Step 6: Develop an IT due diligence report

By this point we have done the work to determine what needs to be accomplished and we have put our “stake in the ground” by defining the priorities (our strategy) by which to execute and to address these needs. Writing all this up in a report helps you articulate your discovery issues and key implications as well as communicate your plan. The IT due diligence report highlights important issues for those executives who will read it.

Step 7: Develop a technology transition and support plan

This part is essential. Without a transition plan, there is little hope for a successful and smooth transition. The technology transition and support plan that is developed as part of due diligence is not the comprehensive plan that needs to be concise enough to provide a general roadmap pertaining to time frame and project initiative that addresses the needs of the newly merged companies.

IT due diligence is more about understanding the business, the issues, and the needs of the company that have technology implications than it is about learning every aspect of the technology. The bottom line is that if there isn’t a real need by one of the organizations of the company, the technology is actually irrelevant. Keep your focus to business-level issues that have significance rather than allowing yourself to get pulled into the detail muck.

Organize your approach and work proactively to anticipate all the technology support needs, and you will position yourself and your company for a successful company merger.

— Mike Sisco

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