When evaluating contenders for M&A what key aspects should you focus on when assessing the target company's IT infrastructure and systems during technology due diligence?
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In addition to assessing existing technology architecture, hardware and business enabling applications, we place an emphasis on assessing the details of their business operating model. Specifically, to understand if their existing business processes and application platforms provide them a competitive in the markets that they operate in.
We’ve done about 17 M&As in the last 15 years or so, and I have a list of about 50 questions that we send the target company. Once those are answered, we send a second round of questions. The goal is to determine what type of infrastructure they have as well as to understand their system and data. What I’m really looking for is how difficult is it going to be for us to get their data and massage it. Most of our M&A's involve taking antiquated systems because the owners are getting ready to retire so they didn't want to put the money into getting new infrastructure.
Most of the time it's a 100% clean slate where we take all their old equipment and we bring out all new. But essentially what we're looking for is just how difficult is this going to be? How much time will we have to spend on getting them onto our systems?
there is a great point in here - the context of an acquisition. The questions we should ask and the responses we should hope for are different if we are buying a company we want to integrate into our existing operations versus buying a company to expand into a new area, where systems and processes could be significant different from our existing baseline.
For us, it depends whether or not we will be integrating them, or holding them at arms-length. If we plan to integrate them, we tend to do lighter due diligence as will replace the stack. If they will be held at arms-length we will focus on security, age of technology infrastructure, technologies in use, annual spend, IT priorities and strategy, number and skill-level of staff, past security incidents, etc. This is done via review of sell-side material provided up-front in a Deal Room / VDR, responses to written questions, and subject-matter expert sessions we hold with them.
The output of due diligence is used in two ways: risk management (what steps do we need to take to protect Deal Value, as we pursue the Deal through Sign, Announce and Close phases); and what investment will be needed post-Close to bring IT up to our requirements, or to replace it.