IT is intrinsic to many business operations today, so understanding the capabilities, limitations and risks of a company’s systems is important for anyone considering an acquisition.
“IT systems are critical to a business’s ongoing success and its growth plans,” says Graham Pollitt of Dow Schofield Watts IT Advisory. “Without understanding the IT systems and having a plan on how to absorb the new business, spending can get out of control and the challenges of managing two IT systems can overwhelm an IT leadership team.”
Graham, an IT due diligence expert, spent 22 years with General Electric leading IT activities on numerous deals. He offers six reasons to use IT due diligence:
- Security – growing concern about cyber risks is one of the key factors driving uptake of IT due diligence in the US. Hacking and denial of service attacks can cause major disruption to business operations, while security breaches can cause serious reputational damage, especially if the story is reported in the media.
- Compliance – regulatory issues such as software licensing and data loss can result in large penalties and additional scrutiny, and in extreme cases even threaten the business’s survival or force it to stop some of its business activities. The new GDPR rules which come into force in May 2018 are one example, and will introduce hefty fines for loss of people’s personal data.
- Business continuity – inadequate or non-existent disaster recovery plans are another factor which could put the business in jeopardy.
- Overreliance on key individuals – in some cases, in particular where systems have been developed in house, their operation depends on one or more key staff. If these individuals leave, all their knowledge and expertise is lost which can have a serious impact on everything from business development to productivity and compliance.
- Capacity limitations – whether the problem is due to the technology or the capabilities of the IT staff, if the system lacks capacity, it can hold back the company’s growth.
- Productivity – Applications that are not fit for purpose or cumbersome can limit the ability to drive synergies across the business and meet productivity targets.
Graham adds: “As businesses become ever more dependent on technology, it’s not surprising that IT due diligence is increasingly becoming a standard process in M&A deals.”