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Hidden Profits Author:

Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.



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IT Due Diligence – What and Why

Filed under: Uncategorized — Lynda Roth at 2:39 pm on Thursday, July 23, 2009

In the course of my week, I meet numerous professionals many in the M&A (merger & acquisition) business. In our discussions the topic frequently turns to the due diligence required for a transaction to take place. The purchasing party needs to verify the information the acquisition target has provided so a group of accounting and finance professionals are used to validate the financial status of the company. The financial team works on the numbers, determines how to save cost by consolidating,  and how to grow the business.  In the end they create this fabulous financial model of what the company will look like in the future.

What I find interesting is that all the information they use comes from computer systems.  Today all businesses run at least transactional on some sort of computer system.  Rarely does the due diligence take into account the need for a review and planning for the technology and computer systems.  And what happens all too often is that lack of review and planning of the computer systems and information technology results in the demise of a beautiful financial plan.

What do I mean by IT due diligence. IT due diligence falls into 3 major categories:

1.   A review of technology, systems and processes that currently are used by the acquiring firm.  This is important to understand the ability of the acquiring entity to absorb the acquisition(s).  

2.  A review of the acquisition’s technology.  This would include evaluation of

  • Infrastructure (hardware and software) to determine its life, the cost of support and the skills required to support it.
  • Contracts for IT to determine legality of all licenses, transferability and cancellation requirements in each contract.
  • IT personnel review to determine the key employees required to support the existing IT structure and the skill sets that are transferable to the combined company.

3.  Preparation of a transition plan that would define the technology required for the new company and the tasks, personnel and investment required to complete the transition.

This due diligence should be done before a deal is consummated by experienced IT professionals as the results of this due diligence could have an impact on the final financial deal.

 

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