IT Due Diligence Is Critical In M&A

Are you getting an accurate view of a target's potential?

In Mergers & Acquisitions(M&A), inadequate IT analysis can undermine the value of a deal. IT issues and costs can make or break a deal. Per recent studies, 45-65 percent of the expected value creation from acquisitions is directly linked to the success of IT integration.

Without conducting a thorough IT & Cyber Due Diligence early on buyers aren’t getting an accurate view of a company’s potential value or risks. Overlooking this aspect can negatively impact post-deal financial results. IT costs and integration timescales may be misunderstood, particularly with respect to post-close integration of IT systems.

The importance of IT Due Diligence in M&A cannot be overstated.

The importance of IT due diligence cannot be overstated. It provides a clear understanding of the technical health of a business, which can significantly impact the value and success of a transaction. It can reveal hidden liabilities, such as outdated technology, security vulnerabilities, and compliance issues.

Inadequate technology due diligence is one of the most common acquisition risks. It can cause a lot of upheaval during the M&A process. Unforeseen liabilities, financial misrepresentations, and operational challenges can arise, leading to losses, reputational damage, and legal headaches. Unfortunately, some companies are not focusing enough on technical due diligence.

Lack of IT Due Diligence can lead to:

  • Unforeseen liabilities
  • Financial misrepresentations
  • Operational challenges
  • Financial losses
  • Legal issues

IT Due Diligence can determine a more accurate valuation.

IT due diligence ensures buyers arrive at a better, more accurate valuation. Results feed into financial models and risk mitigation strategies. It can be used to determine whether the target has the necessary IT assets, resources and processes to support the combined business in achieving its future strategic objectives.

It can uncover performance problems, liabilities and key risksIt can also identify IT opportunities and synergies between the acquirer and target systems, as well as potential investment needs. If analysis indicates a substantial impact on the operating model, for example, this information may be leveraged during negotiations with the seller.

Pre-transaction IT Due Diligence.

It’s critical to conduct IT Due Diligence as early in the deal cycle as possible to avoid risks and gain a true value of a target.

Pre-transaction IT Due Diligence includes:

  • IT organization and strategy
  • Business applications assessment including: ERP, CRM, HCM
  • Infrastructure assessment
  • Synergy analysis
  • Risk analysis

The critical need for Cyber Due Diligence in M&A.

Cybersecurity has become a top priority for company leaders, boards and investors. M&A makes the needs for cybersecurity more critical. M&A leaders need to understand the risks of a company as cyber threats can have severe consequences for businesses.

Too often organizations don’t consider the cyber risk of a company they are acquiring or they will wait until the deal has closed. Unfortunately they learn too late the undisclosed data breaches or lack of security practices they have inherited, increasing their financial, compliance and reputational risk. Assessing the cybersecurity risks of an acquisition early in the process can save millions of dollars in avoided data breach costs, and provide awareness around the risk you’re inheriting.

Pre-transaction Cyber Due Diligence.

Acquiring companies should integrate cyber due diligence into the M&A process as soon as they can, even when initially screening for targets companies. Unfortunately, 5% of buyers perform cyber assessments pre-acquisition, and 57% perform it while the transaction is being completed or post-acquisition. Many M&A deals are closed without knowing what data and assets have been put at risk, which could compromise the over all deal success as well as cause substantial risks to the buyer.
N2M’s IT & Cybersecurity Due Diligence Services:
N2M has over 30 years of experience serving clients as trusted IT advisors. N2M’s IT & Cyber Due Diligence team serves leading companies and private equity firms world-wide as trusted advisors.
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