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There are millions of details to consider as you’re preparing for M&A. Without the right technical due diligence, you might find yourself taking on unexpected risks.
When organizations merge in any way, you are taking two already-complex technology models and attempting to find the crossover between the two that still retains the core security and operational effectiveness of both businesses. Successfully bringing two businesses into technical lockstep without exponentially increasing the risk requires deep dives into the infrastructure, data storage, technology platforms and more of each organization — something that can be challenging to accomplish in an accelerated timeline. Due diligence around your information technology platforms and structure should start early in the process and continue throughout the M&A lifecycle to be truly effective in reducing the associated risk.
Technical due diligence is an activity that is often proscribed to the accounting functions by investors, with the intention that internal auditors will have a full understanding of the challenges and requirements that should be met in a merger or acquisition. While accounting professionals are well-versed in ensuring that operations and processes are in full compliance with the law, the nuances associated with merging technologies can be easily overlooked without the in-depth knowledge of technology leaders involved in the conversations. Even having technical assets from the merging organizations work through any questions doesn’t provide you with a value that you would gain from a comprehensive review by external IT due diligence experts.
There are heavy fines associated with major compliance misses, particularly in the areas of GDPR, HIPAA and other governmental data compliance measures. Your organization could potentially be taking on a major liability that may not be immediately evident to internal auditors or other M&A due diligence professionals, simply due to the complex nature of data storage, retrieval and transmission. Both internal and external factors may be to blame for this mismatch, with a changing regulatory and legislative environment being a key component in the equation. Comprehensive IT due diligence may uncover fundamental issues that may not be impacting the business value currently but that could dramatically add costs or risk to the combined businesses in the future. More than 30% of businesses who successfully completed M&A activities noted that internal factors affected the value generated, with 28% of private equity dealsquoting execution or integration gaps as a cause and 25% noting that faulty or inadequate due diligence was partly to blame.
The technical risk associated with mergers and acquisitions does decline over time but can reappear based on moves in the industry. This is particularly true of organizations that are highly regulated such as healthcare, legal and financial institutions. With this type of organization, shifts in the legal requirements can bring a challenge that was previously hidden in a dark corner into the bright spotlight. A recent study shows the dynamics of post-merger risks and how they can continue to affect organizations in the future, making it vital to retain ongoing IT due diligence during the post-merger period.
Protecting your organization during a merger or acquisition starts with a full picture of your current assets, liabilities and business risks — and those of your potential partner. Having adequate resources available for IT due diligence can help fill in any gaps in understanding while providing best practices and recommendations to smooth transitions in the future. Contact the professionals at CIO Advise at 833-CIO-ADVS for more information or contact us online about how we can support your IT due diligence needs.