While 2023 is considered one of the worst years from an M&A perspective in the last decade, this year is looking more optimistic given the interest rate guidance for this quarter and deal activity from the past quarter increasing by 6.5% according to Pitchbook. What this means is an optimistic outlook towards new deals, and one of the key parts of this is everyone’s favorite part: the due diligence phase. Given the purpose is to ascertain the costs, risks, and goal alignment, it makes sense for the due diligence activity to focus on the people, costs, and legal risks, but what about the tech?
You may be thinking this is only relevant for tech companies or something to worry about after the deal is signed. Here’s the thing, the tech not only matters, but it can make or break the acquisition.
What do I mean by this? There is more to the IT group than ensuring everyone has an email address and keeps the back-office applications up and running. Yet, for what little guidance exists on the tech due diligence side, that is exactly where the focus is and what synergies can be maximized after the acquisition. By looking at just the costs, you are missing out on the risks associated with the integration on day one such as whether you can make the initial time-frame within your target budget, and any underlying issues due to a brittle architecture that could take the business down.
Most importantly, you could miss out on a key accelerator towards your strategic goals.
Suppose you are Acme Inc. and looking to increase your footprint in the anvil space beyond your single coyote customer base so you purchase Coyotes Unlimited initially for their customer list of coyotes. During due diligence, you take a look at the IT budget for Coyotes Unlimited and see this $500k per year line item for internal projects. Since this has nothing to do with the coyotes being acquired as a part of the deal, your first inclination would be to cut it to save costs. However, what if I could tell you that project identifies all road runners within the southwestern United States? Now if you are not only looking to sell anvils and target specific customers, having that kind of information could prove lucrative, right?
What we provide, as our initial due diligence package, is the holistic IT view tailored specifically for the M&A event. We’ll look at the target company’s architecture, the people and culture, the vendors, and the processes. Essentially everything that makes the target tick, and report back on what it would mean for your goals as well as the risks and rough costs and time-frames to integrate. Then we can work with you on how to make the integration happen.
One of the things that we’re actively working on is a checklist that you can use to get the 40k foot view of your M&A activity. The best way to think of it is to treat it as a sniff test for entering a sushi restaurant. If you pick up a fishy smell, then you know something is off.
If you’d like to know more or have early access to it, then let me know by filling out the form below.