Billions of dollars are spent on mergers and acquisitions (M&A) every year. 70-90% of those mergers and acquisitions fail, according to the Harvard Business Review. The top three reasons consistently cited are 1) lack of shareholder value, 2) inability to leverage each other’s strengths, and 3) problems on the technology integration side.
During the due diligence process, executives often focus on the deal’s financial and strategic benefits, and software/IT becomes a back-office integration consideration or issue. That might have worked a couple of decades ago, but with increased digitization and billions of digital transactions/interactions driving business, getting IT right is fundamental.
All M&As have inherent risks, but applying the right technology due diligence can help mitigate them. If the software is a large part of your deal’s valuation, you need to understand these risks sooner than later. That’s why it’s critical to involve IT early in the due diligence stage and to keep technology considerations at the forefront of the process.
The following steps will help you uncover critical insights and develop a solid game plan during an M&A.
Tap IT’s knowledge base
IT teams have vast experience in more than just the technology that they’re working on at the moment. More often than not, they share a tribal knowledge of how the system works and understand the genesis of business decisions that impact those systems. Involving IT teams give you greater context for day-one planning and subsequent roadmap decisions. Often, it’s hard to get information upfront about the technology, beyond cost and some high-level facts. Involving IT teams early will help you more quickly uncover alignment between business objectives and technology. They can also help you identify leverage-points within the organization and quantify the business impact of the technology in terms of efficiency and customer satisfaction.
Adopt a cluster mindset
The goal should be to deliver value early to the business. Teams often focus on choosing the best platform for certain functions and then linking them up. A better strategy is to identify clusters that work and link them up. Reducing duplication and ongoing modernization should be part of the long-term roadmap. This quickens the process of application rationalization, but at a minimal cost—you’re not looking for perfection in the first go. This also reveals the business function alignment that will be required as application rationalization picks up speed post-M&A.
Assess the technology
It’s important to adopt both a macro and micro view of the technology you’re dealing with. Understand the evolution of the systems and the reasons behind both the development practices and technology decisions. Conducting due diligence on the software itself must involve assessing its architecture and code. The architecture provides the foundation, defining how the code is assembled and structured.
The open-source components and patents also need a thorough assessment. Open source copyright and distribution can unearth unforeseen risks. Reviewing current patent agreements, potential patents, and licensing agreements will help you identify risks and threats. Some of these things can be deal-breakers, and you’ll want to know about them early in the evaluation.
Security is another key consideration when conducting a technology assessment. With increased digitization comes to increased security vulnerabilities and heightened requirements. Taking a comprehensive approach to security audits can save you surprises in the long run.
Analyze team capabilities
IT teams possess intellectual property that can end up creating a substantial competitive advantage, so make sure you value them in the deal. Uncovering capabilities early on and pairing them with records management and legal functions pays dividends in managing corporate risk and exposure.
For a merger or acquisition to be successful in the long run, it’s also important that both parties share a clear picture of the organizational and team structures going forward. Using a tool like People Analyzer can make these discussions more productive by setting clear benchmarks to determine whether individuals are aligned to the desired organization. A proactive analysis helps M&A participants—both sellers and buyers—get a head start on putting together the end-state organizational blueprint.
We’re in a unique position right now to step up our due diligence by bringing IT to the forefront of our deal-making. Forbes predicts that timelines will be significantly extended for M&A deals that survive the pandemic or have been entered into during this period of uncertainty. Now is your chance to set yourself up for success by conducting a thorough analysis of the systems and technology organizations you’re dealing with. If you don’t think you have the resources or knowledge to conduct an objective analysis, find an experienced partner who does! Understanding IT can be your competitive advantage: You’ll end up with a more robust day-one plan, plus a short term and long-term roadmap that will vastly increase your odds of success.