Make IT a Partner in Successful M&A Due Diligence

Get IT involved in the M&A process pre-close to help ensure post-close success.

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Your Challenge

  • Many organizations are unaware of the essential role IT plays prior to executing a merger or acquisition.
  • IT-related activities are usually the largest cost items in an M&A, and when these costs are overlooked or underestimated, it can end up costing organizations millions in additional costs down the road.
  • Even if IT is involved early, the time between the Letter of Intent and the signed deal may be as little as three to four weeks.

Our Advice

Critical Insight

  • To mitigate risks and create accurate cost estimates, the CIO must force their way into the M&A conversation before the deal has closed.
  • Gathering and analyzing information is an iterative process that is ongoing throughout due diligence. Update your assumptions, risks, and budget as new information is obtained. 
  • Communication with the M&A team and business process owners should be constant throughout due diligence. IT integration does not exist in isolation.

Impact and Result

  • CIOs have to force their way into the conversation during the due diligence phase, before the deal is closed and it is too late to make changes or price adjustments.
  • The CIO has a line of sight into IT integration considerations that the business often does not consider or take into account. As such, the CIO has an obligation to explain the IT cost implications of the M&A to the business in order to ensure they understand the whole picture before they make their decisions.
  • The CIO needs to collect information on both their own organization and on the target organization, analyze the information, and then make critical assumptions to define the resultant IT enterprise. By doing this, the CIO can provide the M&A team with the accurate cost information they require to make holistic decisions.

Make IT a Partner in Successful M&A Due Diligence

1

Investigate challenges and benefits

Having IT involved in the M&A process from the beginning can lead to reduced operating costs, quicker decision making, and increased synergy capture.

2

Gain executive buy-in

It is essential that the IT team and CIO are aligned with the M&A business goals and objectives.

3

Determine current state of target organization

Collect as much information as possible about the target organization.

4

Consider current state of own organization

Recognize the key pieces of information that should be gathered about the current state of your own organization.

5

Define resultant enterprise

Understand the resultant business end state, and design the target end-state environment for IT.

6

Close gaps and estimate costs

Develop assumptions to close M&A gaps, and finalize IT investment costs.

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Module 1: Launch Due Diligence

The Purpose

  • Determining IT’s current capability to support an M&A transaction.
  • Identifying the goals and objectives the business has for the M&A.
  • Gaining the buy-in of the M&A team and executive management for IT’s involvement with M&A due diligence. 

Key Benefits Achieved

  • Capability for IT to successfully support the business throughout the M&A transaction determined.
  • M&A business goals and objectives identified.
  • IT due diligence team selected.
  • Gaining buy-in for IT’s involvement in M&A due diligence. 

Activities:
Outputs

1.1

Complete & review M&A health check

  • Assessment of M&A capabilities

1.2

Gain executive buy-in for IT involvement in M&A due diligence

  • PowerPoint presentation to make the case for IT involvement in M&A due diligence

1.3

Identify M&A business goals and objectives

  • List of M&A business goals and objectives

1.4

Assemble the IT due diligence team

  • List of IT due diligence team members

1.5

Define success metrics

  • List of business and IT metrics

Module 2: Gather Information

The Purpose

  • Taking a structured due diligence approach that properly evaluates the current state of each organization involved in the M&A transaction.
  • Retrieving critical information from the target organization to help determine the attractiveness of the M&A target.
  • Examining the needs of each organization based on analysis of application and data, infrastructure, IT people, and IT processes at each organization. 

Key Benefits Achieved

  • A clear understanding of the steps that are involved with gathering information on both the target organization and the buying organization.
  • Recognition of the various methods of collecting information from the target, the iterative nature of the collection and documentation process, and the format in which information should be recorded.
  • Understanding the considerations that need to be made when looking at the current state of each organization. 

Activities:
Outputs

2.1

Determine the business capabilities of the target organization

  • Business capability map of the target organization

2.2

Prepare a list of questions for the target organization

  • Information request for target organization

2.3

Create a strategy for on-site discovery

  • On-site discovery strategy

2.4

Retrieve or create a business capability map for the buying organization

  • Business capability map of buying organization

2.5

Identify the master data domain, data sources and system of record at the buying organization

  • List of master data domains, data sources, and system of record identified

2.6

Retrieve (or create) an applications inventory and map to business capabilities at the buying organization

  • Application inventory and mapping

2.7

Identify and consider infrastructure at the buying organization

  • List of infrastructure considerations

2.8

Identify and examine important IT processes at each organization

  • Inventory and analysis of important IT processes

2.9

Retrieve (or create) an IT organizational chart and examine the current IT staff at the buying organization

  • IT organizational chart and evaluation of staff based on competency and capacity

Module 3: Perform Analysis

The Purpose

  • Understanding how the business sees the resultant capabilities in the newly formed organization and determining the best way to support them.
  • Selecting a target technology environment that is aligned with the business objectives for the M&A.
  • Identifying gaps, redundancies, and initiatives for each business domain, and selecting the appropriate IT integration strategies to achieve the target technology environment. 

Key Benefits Achieved

  • Identification of the ideal post-M&A target technology environment.
  • Recognition of the key considerations when determining the appropriate combination of IT integration strategies.
  • Vision of the IT organizational design for the resultant enterprise. 

Activities:
Outputs

3.1

Define the resultant enterprise capability map

  • Resultant enterprise capability map

3.2

Select the target technology environment

  • Target technology environment

3.3

Analyze data and application gaps and redundancies, then determine the IT integration strategies

  • Analysis and integration strategy for data and applications

3.4

Identify the resultant enterprise’s infrastructure needs

  • Infrastructure needs for the resultant enterprise

3.5

Identify IT process gaps and redundancies

  • IT process gaps and redundancies in the resultant enterprise

3.6

Identify IT people needs and redundancies

  • IT people needs and redundancies in the resultant enterprise

Module 4: Estimate Costs

The Purpose

  • Developing assumptions to estimate the remaining capital and operating costs that have not yet been reflected in the integration budget.
  • Preparing the IT Due Diligence Report for final submission to the M&A team.  

Key Benefits Achieved

  • Recognition of how to create an IT integration budget for the M&A transaction during due diligence.

Activities:
Outputs

4.1

Develop assumptions to close remaining M&A gaps

  • Develop assumptions to close remaining M&A gaps

4.2

Finalize IT investment costs and synergies

  • IT investment costs and synergies finalized

4.3

Finalize the IT Due Diligence Report

  • IT Due Diligence Report finalized