The risk associated with a potential merger or acquisition today extends beyond what you’ll find in the general ledger. Technology – and all it implies – plays an ever-greater role in the success or failure of enterprises.
Therefore, it makes sense that IT due diligence should play a central role in deciding whether a deal goes forward or not. Failure to account for legacy technology in calculating Total Cost of Ownership (TCO) often leads to unanticipated costs and even possible compliance or regulatory issues.
While checklists are handy (we provide one at the end of this post), it’s also important that whoever performs your due diligence takes an objective and expert approach. Each case is unique and dynamic. It involves not just the machines in the building but IT expertise on staff, software, disaster recovery plans, development processes, legal entanglements and so on.
As you move forward toward merger or acquisition, here are 10 questions and issues that your IT staff or managed IT services partner should evaluate:
- What condition is the target company’s technical architecture in? Answering the question requires a thorough review of component technology, standards compliance, data structure design, code structure and a half-dozen other items. Experts should assess the scalability of systems and any performance issues.
- What about the infrastructure? Internal systems need an adequate technical infrastructure – routers, switches, storage devices and so on – to do the job. Does that infrastructure allow for scalable growth? Does the IT team have the right development hardware and software? If not, what CAPEX or OPEX will be required to get it up to snuff? How will the infrastructure of the target company integrate with your own?
- Who’s Who on the Team? You should take a close look at who makes up the target’s technology team, assessing all aspects of management and development. Is the team overstaffed or taxed to the max? Are they underpaid or overpaid in comparison to the market? You also should look at risk factors such as: How dependent is the team on one developer, and what happens if that person leaves? And this: Who has the critical undocumented knowledge?
- What about the IT support staff? Assess the company’s technical support group to determine sufficiency of staffing, adequacy of procedures and processes and client satisfaction. Is the hardware and software they use functional and reliable? What is the average response or callback time?
- What’s the IT maintenance and upgrade history? This is a look that goes beyond, “How old is the equipment?” Examine how often products have been upgraded and the process for evaluating new releases. What is the company’s ability to quickly deliver critical bug fixes or major releases with new features?
- Is there a good structure for development? Beyond having the right people, a target company needs the right processes and documentation for development. You should dive beneath the surface to evaluate coding standards and functional specifications, among other things. What is the quality of primary and updated technical documentation?
- Is the network secure? You want to know the A-to-Z on IT security at the target company, from anti-virus protection and firewalls to proper password protocols. You also will want to know about off-site backup and recovery capabilities in the event of disaster. Is there a plan on paper? Have precautions been taken?
- How does the target fare in IT by comparison to its peers? You need to do a little research to determine how the target company compares against its industry peers in terms of IT capabilities. Is it using the same type of hardware and software as leading competitors? Do other companies have a competitive advantage with IT tools the target company does not possess? Also, take a look at industry analyst reports to see how the target company lines up with trends, technology-wise.
- What do customers say? You should interview some customers of the target company, randomly selected, to see if they are satisfied with technology related services they receive and ask if there are areas that would shore up customer satisfaction.
- Are there legal issues? All mergers and acquisitions will have a team of lawyers scrutinizing everything. On the IT side, be sure to look at potential technology issues, including software license agreements and whether the company fully owns its source code.
These questions are just the start of comprehensive, objective IT due diligence. To do the job right, it’s important that qualified experts conduct the inquiry.