While often involved in business-led activities, IT is a critical component of the asset acquisition process. From the initial due diligence, through deal structuring, to change of control (CIC) and transition, IT plays a key role throughout the entire M&A process. The IT group can often contribute to assessing potential risks of an acquisition, ensuring that the total costs of the deal are understood, and identifying potential benefits and synergies to be factored into the bidding. In addition, IT plays a pivotal role in the near-term and long-term planning as it relates to core processes, controls, and technology enablement of the business and the targeted acquisition.

So, what can IT do to prepare for the next major acquisition and where can they drive value within the M&A process?

Like Any Good Boy Scout, Be Prepared

Like software delivery, the M&A lifecycle has its own repeatable, scalable approach. Beginning with technical due diligence and analysis of the potential acquisition target’s process and technology through detailed planning and execution of post-CIC integration projects, creating a structured approach to this process minimizes surprises and ensures successful outcomes.

Investing in an M&A playbook that includes technical questionnaires, an evaluation plan that can be easily tailored, and templates for key deliverables will better position IT to contribute to the M&A process and reduce the amount of scrambling required for each potential acquisition. The playbook can also help the overall business development team understand exactly what IT needs to consider and how the results of this analysis will be documented. While each targeted set of assets may differ, a high level of consistency in the evaluation results can still be achieved such that these can be more efficiently incorporated into the overall bid.

Keys To A Successful Due Diligence

From a technical due diligence perspective, several elements are standard and form the core of the evaluation and analysis, including an application map and technical infrastructure diagram, along with a corresponding inventory of application and hardware. These will be some of the first documents to be reviewed as they not only describe how the daily operations and processes are enabled, but what baskets of technology will need to be part of the asset transfer in addition to the physical assets themselves. These documents set the stage for IT and allow IT to begin to formulate a transition strategy, estimate costs and develop a plan. These are essential to understanding common, overlapping, and new technologies/applications that will become part of the IT ecosystem at CIC.

With these documents as the backbone of the analysis, additional areas that will need to be explored in detail to better ensure success include:

• Total support cost profile, including internal and external support arrangements.
• Technical infrastructure and software contracts in place and termination/renewal dates.
• IT projects in-flight and planned, especially as it relates to required upgrades for technology being sunset by vendors and no longer supported.
• Cybersecurity breaches and mitigations have become increasingly important to understand from a corporate risk perspective.

Understanding The Cost Profile

With today’s IT support models understanding a complete support cost profile has become more challenging. Gone are the days where simply understanding in-house IT organizations and staffing can serve as an adequate basis to work up a reasonable estimate of the to-be support costs. Often, IT departments depend on external support arrangements, each with its terms and service-level agreements, which need to be understood to adequately assess IT support costs.

These can be further complicated by the fact that many asset acquisitions include only “some” of the assets within the target company. This results in rationalizing and carving out “partial” support from a full-time equivalent (FTE) perspective, both internally and with service providers. While some arrangements can adapt better than others, understanding which arrangements will present a challenge for continuation, as well as how these might fold into a company’s existing external support arrangements, can impact the cost estimation approach.

In addition, the cost profile should take into consideration potential synergy benefits in the form of cost reduction, especially where there is a common technology in play with the target acquisition. The cost profiling will also need to consider the impact of new technology, which supports incremental processes and capabilities that will need to continue post-CIC, and the support strategy for these technologies as we explored in our previous article.

M&A Transition & Business Readiness

Given today’s highly integrated IT landscapes, carve-outs can become complex system projects in and of themselves. With that, part of the process related to the asset transition should include joint planning for the testing and validation of the targeted carve-out systems and integration. This should include both IT/technical rounds of testing to confirm connectivity and technical operability of the integrated systems, as well as functional validation of the system to ensure that the business can continue to perform its daily activities within the newly carved-out system.

As with any system implementation/go-live, an integrated testing plan that includes participation from both sides from an IT and business perspective is critical. Oftentimes, both parties in the transaction are highly incented to meet milestones and target transition dates. However, the cutover planning must not minimize the need to ensure that both IT and the business are readily based upon clear, measurable success criteria that answer the key mission control questions: Is the technical infrastructure ready? Are the applications ready? Is the data ready? And are the people ready?

Summary

IT plays a critical role throughout the M&A process. Their expertise in integrated system deployment, support, and business process enablement can all be brought to bear to minimize acquisition risks, inform the cost/benefits profile of the bid, and ensure that there is a successful launch for the newly acquired assets. Opportune has extensive experience with helping clients prepare for acquisitions through the implementation of an M&A playbook, assisting with technical due diligence and analysis, shaping transitional service agreements (TSAs), and planning/executing asset integration and transition efforts.