During mergers and acquisitions (M&As), it’s easy to forget about IT. After all, there are much bigger concerns: finances and staffing being some examples. But this is a critical mistake. IT due diligence is never more important than it is during M&A. This is a very dangerous period, where one wrong move could result in downtime or even a data breach.
So how can you ensure that the IT environment functions as expected during M&A?
Why IT Due Diligence Matters in M&A
M&A is a complex process involving many moving parts. Finances, employees, workflows, and infrastructure must be combined. If anything goes wrong during this process, the ripple effect could cause severe, long-term damage:
- Operational downtime
- Poor client experiences
- Financial losses
- Staffing issues
- Security risks
- Reputational harm
- Compliance issues
Technology is central to business operations, making IT due diligence especially important. If systems go offline, the organisation cannot function.
An IT M&A Due Diligence Checklist for Private Equity Firms
Here are the important factors private equity firms must keep in mind during M&A for a successful transition:
IT Systems Review
Begin with a detailed review of all IT infrastructure in both businesses. Identify the core systems that are essential for daily operations, and outline all risk factors that could complicate the M&A process. Consider:
- Current maintenance and support costs
- Whether any duplicate solutions exist that would become redundant after merging
- Any outdated infrastructure that would require replacement
- How complex it would be to integrate these systems
Cyber Security Due Diligence
Cyber threats can become a particularly large risk during M&A, due to the additional vulnerabilities that open up as infrastructure is integrated. To ensure that cyber security due diligence is done, perform:
- A review of existing security policies and protocols
- A gap analysis, using a framework such as NIST or Essential 8 as reference
- An analysis of any previous security breaches – what caused them, what could be done better next time, and whether any potential threat still remains
Before any IT is integrated, it is important to ensure that both businesses are free of any threats. During the transition, implement additional security measures to reduce the risk of cyber-attacks (such as data encryption, threat detection and response, and stronger access controls).
Regulatory Compliance
Combining two different infrastructures and policy sets together often leads to compliance gaps – which, if not resolved quickly, could lead to audits or fines. Check what your regulatory obligations are, and ensure that they continue to be met throughout the process. Document all compliance activities, as this will help you in the event of an audit.
Human Resources and Partners
Take some time to understand the people behind the technology. M&A is a perfect opportunity to make adjustments where needed and improve the strength of your team. Look at:
- How many staff and third-party partners are currently involved
- Any contracts that are in place
- Whether IT needs – including security and productivity – are being met
- How many staff and partners will remain necessary after the M&A
IT Cost Structures and Contracts
Review existing IT budgets, licensing agreements, and service level agreements (SLAs). Are there any hidden costs that could be cut? Look for:
- Impractical or unnecessary investments
- Redundant platforms or services
- Expensive services that can be replaced with a more cost-effective alternative
- Subscriptions currently priced at a higher tier than the business actually needs
Technology Roadmap
During M&A, you should be thinking about the future. Consider how the IT infrastructure will change and grow over time. Set clear, achievable goals, and create a set of key performance indicators (KPIs) to judge success by. Some effective planning now can drastically improve your business’ IT performance post-acquisition.
FAQs
Why Is IT Due Diligence Important During M&A?
A business’ IT infrastructure is crucial for determining long-term success. During a merger or acquisition, problems within one system will eventually impact both companies, potentially causing severe and long-term problems (such as inefficiencies, budgetary waste, or even cyber security risks). This is why it’s essential to address IT during M&A.
Is IT Due Diligence the Same as M&A Due Diligence?
IT due diligence can be a part of M&A due diligence, but they are not quite the same. M&A due diligence covers every task that must be completed during the transition, while IT due diligence is focused entirely on technological infrastructure.
What Should I Do to Prevent Cyber-Attacks During M&A?
Cyber security due diligence will do a lot to prevent breaches during M&A. Identify any vulnerabilities early, and develop a strategy to address them before they can be exploited. Thorough incident response plans will also protect you, by making it easier to mitigate damage should the worst happen.
What Should an IT Systems Review Include?
Every single part of the IT infrastructure should be included in your review, so you can get a clear picture of what needs to be done. This may include hardware, software, networks, data storage, and cloud services.
Should I Create a Due Diligence Report?
Reports are invaluable during M&A. They organise information clearly, allowing you to make more informed decisions. They are also essential for stakeholder buy-in. You should always create detailed reports that outline your findings where possible.
What Is an M&A Integration Checklist?
An M&A integration checklist helps ensure that the two companies integrate smoothly. This may contain IT, but often involves far more. Checklists are important for any complex process – they keep you on track and ensure that every necessary factor is addressed.
Ensure that Due Diligence is Performed With Expert Guidance
For private equity firms, success hinges on far more than identifying the right opportunities. You also need the knowledge and skills to leverage them effectively. IT due diligence involves a lot of work, but will equip you with the insights needed to mitigate risk and ensure continued financial success. It is a highly important part of any M&A.
Not experienced with IT? You don’t have to be. iCare Cyber has the expertise needed to help private equity firms thrive. If you’re not confident in your ability to handle IT due diligence on your own, explore the benefits of hiring a consultant.