It’s standard practice during the M&A due diligence process for the financial and legal teams to perform an onsite visit of the acquisition target. In some deals, IT due diligence is limited to an expert reviewing the source code and discussing, via phone or email, the current system environment with an IT contact at the target. This can be tempting, given the fact that many smaller companies are utilizing a cloud-based architecture, and there may be no local data center to visit. This approach is a mistake, however, and should be avoided.
There are numerous benefits to including an onsite visit as part of due diligence.
- To the extent that there are local IT resources such as servers, laptops, PCs, printers, etc., it’s important to compare the real world to the inventory list provided by the target, to be sure equipment is in good working condition and that it exists in the first place.
- In my experience, an IT professional can learn a lot about the target by simply walking around. I’ve seen things like tarps draped over server racks (“because it’s supposed to rain”) and sensitive files left in a room with a door wide open to the parking lot. While these are issues that are easy to address, they might give you additional information about the expertise and priorities of the target – before the transaction closes.
- By spending time onsite at the target, there’s an opportunity for the staff to develop a comfort level with you that you can’t get over the phone or via email. You may find when you get to know the IT staff even a little, that they can be very forthcoming with information, both good and bad. You might hear about a new product idea that’s under development, or a part of the target’s infrastructure that you can leverage in a way you hadn’t thought of before. On the other hand, you might find out that many on the staff are unhappy and looking for work, or that the product you’re buying has major scalability problems that you might not have detected via a source code review.
- Even brief interviews with the IT staff at the target can alert you to strengths and weaknesses, in terms of both technical skills and personality, that are not discernable from a resume. This can allow the acquirer to start thinking sooner about how the IT teams might be integrated.
- Finally, if the person leading the onsite visit during IT due diligence is a member of the acquiring company’s IT team, this provides an opportunity to start to develop a personal relationship with the target’s IT staff. The announcement of a merger or acquisition inevitably makes the staff at the target nervous. If the people they met from the acquiring company during due diligence made a good impression, it can help to reduce that concern and the possibility of losing key staff.
The onsite visit during IT due diligence can confirm assumptions, identify additional risks and opportunities and help the acquiring company get a head start on integration. All of these benefits make an onsite visit well worth the effort.