Whitepaper

M&A Due Diligence: 7 Things the C-Suite Should Know About IT

3 minutes

Market demands ranging from digital health to cost containment are all making IT a critical component of any early-stage merger and acquisition (M&A) efforts. From IT staffing, system upgrades, and system replacements to data storage, information sharing, and cybersecurity vulnerabilities, due diligence findings can materially impact deal valuation and jeopardize integration efforts.

Assessing the IT landscape and costs in the early stages of merger and acquisition (M&A) due diligence is critical for getting the deal’s financial model right, setting the course for successful integration, and enabling value capture. These 7 leading practices (discussed in more detail in M&A Due Diligence: 7 Things the C-Suite Should Know About IT) can ensure IT helps create and maximize the strategic value of your partnership portfolio:

CHECKLIST:
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1. Plan for a rapid transition to a common, integrated IT services platform.

Set expectations with stakeholders from both entities to convert to a standard set of IT tools and services. Create a high-level roadmap, identifying the platforms to consolidate/integrate on Day 1 and which to transition/decommission by Year 2.

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2. Know the data part of the deal.

As one of your most valuable assets, data availability and acquisition expectations should be in the definitive agreement. IT and operations teams should jointly assess what information exists, where it is kept, what the quality is, and what is needed to collect and transform it.

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3. Understand IT staffing and major contracts. Model a pro forma alongside the rest of the deal.

Assess staffing costs (typically more than 40% of IT operating costs), and establish an educated position on major IT contracts early—focusing on minimizing termination penalties and right-sizing coverage.

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4. If a divestiture, solidify IT transition terms as part of the overall agreement.

Create a formal IT-focused transition service agreement (TSA) that outlines the divesting entity’s responsibilities for providing appropriate IT services pre- and post-close and the costs for those services. Insist on defined service levels with financial penalties if not met.

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5. Review cybersecurity audits, and insist on a third-party audit just before closing.

Review cybersecurity audits to identify compromised IT assets and the remediation/preventive maintenance programs to guard against future attacks. Adjust the acquisition value and/or include cybersecurity remediation requirements in the definitive agreement. Insist on a third-party audit just before close.

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6. Understand your facility IT.

If you expect employees to work across merged facilities, then integrated building access, timecard devices, and security monitoring becomes critical. Joint IT and facility teams should conduct physical plant assessments and develop realistic integration plans and cost projections.

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7. Set the stage for success with IT and operations working side by side.

Operations and IT should jointly determine the risk, high-level operational transition timelines, the IT implications and constraints, and the plan for preparing the organization for the changes. Be sure IT and operations are working in lockstep instead of separate parallel paths.

Careful Due Diligence Can Accelerate Value Creation

Market demands, ranging from digital health to cost containment, are making IT a critical component of early-stage M&A efforts. Focusing on these 7 key areas will enable a more informed business decision on partnership strategy and deal structure. It will also help  your organization reduce IT costs associated with integration and  accelerate value creation.

© 2022 The Chartis Group, LLC. All rights reserved. This content draws on the research and experience of Chartis consultants and other sources. It is for general information purposes only and should not be used as a substitute for consultation with professional advisors.

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