In the last couple of months, our Mergers, Acquisitions and Divestments team have seen a noticeable increase in enquiries for IT due diligence and integration services. This mirrors the increase in M&A and divestment activity being widely reported, as companies seek to adapt to a post-pandemic world and look to position themselves for growth in 2021.
Data from London Stock Exchange-owned research firm Refinitiv reports that the first 6 weeks of 2021 marked the highest opening six-week period for deal announcements of any year since 2000 (1), which reflects what we are seeing in the marketplace.
IT due diligence has always been an important part of pre-transaction analysis, sitting alongside wider commercial due diligence work. However, in today’s landscape, where IT is the backbone of many organisations and in some its entire business model, it has never been more important – certainly nowadays IT integration is one of the critical success factors in any merger or acquisition.
The costs and challenges of IT integration are frequently significant and often take longer than originally anticipated. Similarly, the challenges of splitting a well-run set of IT services to support a divestment are often far more complicated than might be expected - often encompassing legal and regulatory elements alongside the technological separation.
The key challenge is to fully understand the existing IT environment/s in enough detail to accurately estimate benefits, costs, risks and timescales for integration and to identify priorities and quick wins to support acquisition, merger or divestment planning and communications. This needs to cover the entire IT landscape across people, applications, data, infrastructure, suppliers, contracts and governance.
IT due diligence, carried out correctly, can help accelerate the transition lifecycle, maximise value and ensure technology does not threaten the deal. On the flip side, the cost of IT integration, or inaction, and the impact on future IT Total Cost of Ownership (TCO), through unnecessary duplication and complexity can be very high.
IT Due Diligence And Integration Checklist
- Understand the business driver behind the acquisition, merger or divestment: where will the value to be driven from?
- Get IT due diligence carried out early in the pre-deal assessment phase,
- Make sure that commercial and IT due diligence are carried out in parallel and are as integrated as possible,
- Ensure the due diligence focuses on the post-deal requirements of the business, not the pre-deal requirements,
- Understand the existing IT environment(s) in enough detail to accurately estimate costs, benefits, risks and timescales for integration or splitting and to identify priorities and quick wins to support merger / divestment planning,
- Identify the critical services: any elements that cannot or should not be integrated, and any services that cannot be split (and so may have to be duplicated) to make suitable plans for those. The changes around people, processes, applications, data, infrastructure, suppliers and contracts must all be considered together with the overarching governance that supports both the initial change as well as longer term aims,
- Start Day 0, Day 1 and Day 100 planning early, communicate widely and ensure you have the right resources to execute, and
- Take an iterative approach. As the business requirements for IT develop gradually during the transaction process, the IT requirement assessment should refine alongside them.
An accurate and optimised IT due diligence process can enable the IT organisation to provide an accurate view of the business value that IT can bring the post-deal entity(ies) and avoid risks, such as large unbudgeted IT funding requirements, being identified.
To find out more how Coeus Consulting can help IT leaders through all stages of M&A and Divestment lifecycle, view more here.