Due diligence is a set of procedures used to investigate a person or business before entering into an agreement with that entity. Businesses commonly use due diligence to assess a target company prior to acquiring it. Acquisition due diligence specifically examines the information technology assets of the target company.
Acquisition due diligence in IT requires additional understanding in specific areas. This primarily includes the capability, expandibility, and stability of the target company’s IT infrastructure. The personnel who perform IT Due Diligence must also know the operation and support costs of the IT department as well as the target company’s dependence on technology.
Each business acquisition is a unique process, which can make effective due diligence difficult to implement. A business may acquire another business for a variety of reasons, such as diversification or eliminating a competitor. It is therefore essential to understand the reasons for an acquisition when creating a due diligence plan. IT Due Diligence becomes critical when the reason for the acquisition is to obtain the target company’s technology. The IT of the target company may be assimilated into the acquiring company or the target company may be run as a separate subsidiary.
People who perform acquisition due diligence must know the assumptions that the acquiring company is making about the target company. These assumptions typically include growth projections and the client base. The acquiring company also needs to perform specific assessments for the target company. These include evaluations of the target company’s management and staff, identification of the key players, and individuals who are likely to leave when the company is acquired.