The Real Value of IT Due Diligence

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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.

What Exactly is IT Due Diligence, and Why Does it Matter?

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.

Benefits of IT Due Diligence

  1. Enhanced Negotiation: With a comprehensive understanding of the IT layer of the target business, parties can conduct discussions with clarity and confidence.
  2. Future projection: Technology is one of the bigger costs in business. An IT due diligence protocol provides an understanding of current costs and forecasts future expenditures post-deal closure.
  3. Strategic Remediation: Companies being acquired can leverage IT due diligence to find and remedy weak areas that may jeopardize the deal.
  4. Risk Mitigation: Probing IT infrastructure uncovers potential vulnerabilities. Considering these threats, the acquisition company can develop risk management strategies to safeguard their investment and ensure smooth operation post-acquisition.
  5. Operational Alignment: IT due diligence ensures that the target company’s technology matches the acquiring entity’s strategic goals. This helps integration proceed smoothly and ensures synchronicity between both parties.

What to Expect During the IT Due Diligence Process

When embarking on the IT due diligence process, there are several components you can expect to encounter.

Assessment of Infrastructure

The Real Value of IT Due Diligence

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.

Staff and Organization Assessment

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.

Documentation Review

The Real Value of IT Due Diligence

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.

Cybersecurity and Data Privacy Evaluation

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:

  • Reviewing data and cybersecurity policies.
  • Testing security controls (e.g., firewalls, intrusion detection systems).
  • Conducting vulnerability assessments.
  • Ensuring compliance with relevant regulations (e.g., GDPR, CCPA).

Preventing future vulnerabilities goes a long way in securing the buyer’s investment.

Technology Roadmap and Future Plans

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.

Risk Analysis

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.

Cross Analysis With Other Due Diligence

The Real Value of IT Due Diligence

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.

Key Considerations When Selecting IT Due Diligence Providers

1.    IT Expertise

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.

2.    Experience

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.

3.    Legal Expertise

Mergers and acquisitions are a legal-intensive process. An IT due diligence provider with expertise in IT can assist by:

4.    Capacity

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?

5.    Post-Due Diligence Support

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.

6.    Cost and Value

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.

Strategies for Effective IT Due Diligence Preparation and Execution

Before

  • Define objectives: Clearly outline the goals of the due diligence process and create a comprehensive checklist of items to review during due diligence.
  • Assemble a Team: The IT due diligence provider should form a multidisciplinary team comprised of IT experts, legal advisors, financial analysts, and business strategists.

During

  • Support: The target company should be available to promptly address inquiries and grant necessary access to the IT due diligence provider.
  • Open Communication and Collaboration: By fostering a spirit of teamwork between the due diligence team and internal stakeholders, the process can be streamlined, timelines accelerated, and results delivered with accuracy.

After

  • Post-Diligence Support: Look for an IT due diligence provider that can offer assistance both during and after the acquisition process, ensuring smooth integration of IT systems. The target company should remain accessible for a period afterward to address any follow-up queries and provide ongoing support throughout the integration phase.

Protect Your Investments with Hartman Executive Advisors IT Due Diligence Services

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.

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