Despite the potential pickings available, there is as much of a need for ‘caveat emptor’ as in any other acquisition situation. For example, the winter of 2008 saw a number of mergers and acquisitions in the banking sector rapidly accelerate, only for incompatibilities and licensing agreements around the IT systems on which the companies operate to disrupt effective transition to new working structures.
In the rush to buy out ailing companies, businesses and those who back them with finance and advice can be guilty of not seeing that truly diligent due diligence consists of more than research into the financial and legal history and assets of the company under acquisition, but should also cover the IT systems on which the enterprise will run, such as HR, payroll and accountancy functions. Good intentions to reinvigorate an acquired company could come undone over undue haste.
Viewing IT as functional rather than strategic leads into the short-termist thinking that there is bound to be compatibility between two companies’ IT systems simply because they have served the separate companies well. A lack of ‘look before you leap’ on this point can cause problems for companies from the outset. It is also worth bearing in mind that the IT at the company being acquired could be better suited for future purposes than the IT at the company making the acquisition.
The IT systems of the companies in question need to be reviewed to see what will work as it stands, what can be integrated, what to replace or upgrade, the service and licensing agreements, the outlay and the knowledge involved. Understanding the landscape enables a company to streamline the integration of IT and head off any areas that could hinder effective operations.
If these points are not considered from the outset, the unexpected time and costs involved can prove disruptive to a business’s ability to trade, therefore increasing the time it takes to provide financial returns towards a successful exit event, and also potentially becoming less competitive. A fully comprehensive view of these points should cover the strategy, people, processes and technologies the acquired business would need both at the outset and as it expands.
Whatever approach is chosen, financial backers of an acquisition need to ensure that those responsible for IT take the lead in developing an appropriate, structured and measurable methodology covering all aspects required from the due diligence, and providing the basis for a level playing field against which potential IT suppliers can tender and pitch. This may strike those looking to realise their investment as another process to go through, but it is one which pays for itself in terms of reducing potential mistakes down the line.