M&A due diligence has traditionally focused on financial and legal issues. IT due diligence was often an afterthought, even though many transactions would have benefited from its inclusion in the process.
A 2011 Ernst & Young study of C-level and private equity executives found that separate technology due diligence was performed in M&A transactions roughly 50% of the time. IT issues discovered in due diligence played into final negotiations in fewer than 20% of the transactions.
A recent IT due diligence survey on ITDueDiligenceGuide.com of almost 200 M&A professionals shows that the situation may be changing. Participation was solicited on various M&A message boards, websites and groups, the vast majority of which did not have an IT focus.
The survey indicated that IT due diligence is now a component of 88% of the transactions in which the survey respondents are involved. The consistent need for IT due diligence isn’t surprising when one considers the extent to which technology drives almost every business today.
Even though 95% feel that IT due diligence is a valuable component of M&A and facilitates post-transaction integration, 23% of the time IT due diligence is performed by someone who is NOT a technology expert. 61% of the survey respondents indicated that IT due diligence is normally performed by a member of the internal due diligence team instead of utilizing the services of an outside expert. Clearly there is an opportunity to provide additional resources to assist those due diligence teams without a dedicated IT professional available.
54% of those surveyed have experienced a transaction in which issues discovered during IT due diligence led to either a reduction of the purchase price or an outright cancellation of a planned acquisition. This demonstrates that IT due diligence can play a role in stopping a bad deal in its tracks, or at least in establishing a more rational transaction price.
Almost every M&A professional that responded indicated that IT due diligence is a valuable component of an overall due diligence effort.
Here are the relevant questions and responses from the IT due diligence survey:
|Has IT due diligence been a component of any of the transactions in which you’ve been involved?|
|Generally speaking, has IT due diligence been handled by a technology expert?|
|Generally speaking, has the person leading IT due diligence been an outside consultant or part of the internal team?|
|61% Member of the Team|
|Do you believe that IT due diligence facilitates the integration of acquired companies?|
|Has an IT due diligence finding ever been the reason for a reduction in the deal purchase price, or for cancelling a transaction entirely?|
|Overall, do you believe IT due diligence is a valuable component of the due diligence process?|