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THE REAL VALUE OF A PRE-TRANSACTION IT DUE DILIGENCE.

« Had we understood the complexity of IT and their direct impact on customers of our newly acquired company, we would have negotiated the price of the transaction and the contents of the transition services agreement (TSA) very differently. »

« As investors, we dissect in detail each of the facets of data that we understand: debt, financial ratios, goodwill, etc. When comes time to evaluate IT expenses, we often jump over this line of spending because we do not understand IT fully. »

These quotes from our customers clearly demonstrate why we are seeing an increasing demand in pre-transaction IT due diligence (DD). The key question ...

Risk

Is there value in doing an IT due diligence (DD) pre-transaction?

In 2016, all agree that businesses, in all industries, are integrating more and more technology into their operations, not less technology. To keep up and concerned with their efficiency, many small and medium sized businesses have developed “home-made” applications over the years, and have not necessarily invested in upgrades of IT assets. Many of them have purchased a variety of IT solutions, have multiplied interfaces - often creatively -, almost all the time with limited IT resources, little knowledge and all too often with a high turnover of IT support staff.

For any acquirer of an SME, a review of critical IT systems controls for finance and accounting, fixed assets, inventory, HR and payroll and procurement is essential. The acquirer should understand the value of the IT systems, who has access to these systems, how they are protected, how financial data is manipulated, etc.

Our SME customers also have faced the harsh reality of the artisanal management of IT licences and other IT assets. Not understanding the IT licenses and IT agreements can be very expensive. In a past client mandate, had MC2 Consilium not identified and managed the license for a critical application, 80 people would not have been able to work and deliver the company’s services to its clients.

Undoubtedly the answer is 'YES': a pre-deal IT due diligence adds intrinsic value to the transaction.

List of critical items, we measure in a pre-transaction IT due diligence and the impacts on the deal and following post-merger integration and estimated costs

Systems access and controls

Key advantages for the Acquirer WITH a pre-deal IT due diligence

  • Financial decisions based on accurate financial data

 

Key advantages for post-deal integration WITH a pre-deal IT due diligence

  • Fewer surprises on the anticipated EBITDA
  • Costs of integration and change management known and managed

 

Value and complexity of critical business applications

Key advantages for the Acquirer WITH a pre-deal IT due diligence

  • Known value of IT assets
  • Complexity well evaluated
  • Estimated costs (time and money) to transition

 

Key advantages for post-deal integration WITH a pre-deal IT due diligence

  • Planning and mitigation of operational issues, significant financial and technical issues taken into account

IT licenses and agreements (Software, services, outsourcing, hosting, development and IT support)

 

Key advantages for the Acquirer WITH a pre-deal IT due diligence

  • Cost evaluation of known and expected licenses
  • Reduction of legal and reputational risks

 

Key advantages for post-deal integration WITH a pre-deal IT due diligence

  • Migration project plan takes into account license management
  • Needs assessment licenses in line with their cost of magnitudes

Scalability and sustainability (Infrastructure, networking, office automation, telephony, Web and applications)

 

Key advantages for the Acquirer WITH a pre-deal IT due diligence

  • Estimated IT operating costs (time and money) known and held in an account in the price of the transaction

 

Key advantages for post-deal integration WITH a pre-deal IT due diligence

  • Assessment of the compatibility of IT assets with those of the acquirer before and make important decisions early in the transition

IT investment needs (capital to maintain operational business (Capex & Opex))

 

Key advantages for the Acquirer WITH a pre-deal IT due diligence

  • Estimated IT costs (time and money) are adequate and taken into account

 

Key advantages for post-deal integration WITH a pre-deal IT due diligence

  • Impact on EBITDA known
  • Adapted and realistic transition plan

Value and optimization of the acquired IT organization

 

Key advantages for the Acquirer WITH a pre-deal IT due diligence

  • Efficiency and ability to support the business
  • Short-term need to invest or reduce IT staffing quantified and planned

 

Key advantages for post-deal integration WITH a pre-deal IT due diligence

  • Ability to integrate the IT team in the transition plan
  • Reduced transition costs
  • Reduced the difficulty of the transition

 

LIKE TO KNOW MORE?
Please do not hesitate to call us at 450 736 0315 or drop us a line at
info@mc2consilium.ca

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