The Critical Importance of Technology & Cyber Due Diligence in Mergers & Acquisitions
In today’s digital world, technology is increasingly becoming an even more integral part of every business. The pandemic has given us a glance into the future: our increasing reliance on technology, whether it’s videoconferencing software, IoT, AI, or cloud-based tools.
In Mergers and Acquisitions (M&A) technology is also increasingly becoming a key factor in deal success. According to recent research more than 70% of mergers fail to deliver their anticipated value. As technology increasingly permeates all business aspects, understanding a company’s IT assets, systems, and processes becomes crucial during an M&A deal.
The Critical Importance of Technology Due Diligence in Mergers and Acquisitions
Typically, investors value companies based on their revenue, earnings before interest, tax, depreciation and amortization (Ebitda), market reach and growth potential. Investors should examine a target’s technology needs and assess the investment requirements, early in the process to mitigate risks and accurately assess a target’s value.
Technology due diligence is a critical part of the diligence process as it can help buyers avoid unexpected and potentially costly situations post-acquisition. Technology due diligence can be invaluable in providing buyers with an early assessment of how smooth the post-acquisition integration process might be and how quickly the business can be geared up for growth. Failure to do so results in negative synergies from potential tech debt, inadequate post-M&A integration, and a lack of clarity in future value creation strategies, especially regarding the broader portfolio review.
The cost of IT integration, or inaction, and the impact on future IT Total Cost of Ownership (TCO), through unnecessary duplication and complexity can be very high. A thorough technology due diligence can help accelerate the transition lifecycle and maximize value.
The Ever-Growing Necessity of Conducting Cyber Due Diligences
With the recent uptick in cybercrime in general and ransomware in particular, venture capital (VC), mergers and acquisitions and private equity (PE) firms have had to broaden the scope of their due diligence efforts on potential investments to include cyber due diligence.
When organizations don’t complete a detailed cyber evaluation of target companies before a merger or acquisition, it creates an unnecessary risk – one that can result in significant financial and legal challenges. A data breach could not only threaten a company’s business assets and functions, but also could lower its profits, market value and brand reputation, and result in significant litigation and regulatory enforcement actions.
Ignoring M&A Cybersecurity and Failing to Identify Cyber Threats May Result In:
- Significant financial loss in the form of decreased revenue, market value, market share, and even regulatory fines
- Ruined brand reputation resulting in the loss of social capital and overall brand failure
N2M’s Experienced Technology and Cyber Due Diligence Team
N2M’s team has conducted over 100 technology due diligences. Our team specializes in services for Private Equity firms. With over 30 years of experience in technology, N2M is the top choice of leading corporations and private equity firms for Technology and Cyber Due Diligence services and more.
We hired N2M to conduct a technology and cyber due diligence for a potential acquisition of a global manufacturing company. They are experts in technology and their team produced an assessment for us quickly which was important for us in this deal. We have since used N2M for multiple due diligences and we also utilize them for numerous IT services for several of our portfolio companies. Their technology expertise is extensive and we greatly value them as a partner.Managing Director, Private Equity firm