In mergers and acquisitions (M&A), thorough due diligence is crucial to ensure a successful transaction. While financial, legal, and operational reviews often take center stage, IT due diligence is frequently underestimated or overlooked. However, the technology landscape of the target company can significantly impact the deal’s value, integration success, and future risk. This article highlights key aspects of M&A IT due diligence that buyers often miss and explains why a comprehensive IT risk assessment is essential.
M&A IT due diligence involves a detailed examination of the target company’s technology assets, systems, security posture, and IT management practices. This process helps buyers identify potential technology risks, hidden liabilities, and integration challenges that could affect the transaction’s outcome.
Skipping or rushing this step can lead to unexpected costs, operational disruptions, or security vulnerabilities post-merger.
Buyers often focus on core business applications but miss evaluating legacy systems that may be costly to maintain or incompatible with the acquiring company’s infrastructure. Undocumented or outdated technology can create significant integration challenges and drive up post-merger expenses.
A merger technology audit must include a comprehensive security review. Many buyers overlook vulnerabilities such as outdated patches, insufficient endpoint protection, or weak access controls. Unidentified security gaps can expose the combined entity to cyberattacks and regulatory fines.
IT contracts and software licenses are critical to operations but often receive less scrutiny. Buyers should verify vendor agreements, licensing compliance, and potential risks related to service continuity or contract termination upon acquisition.
With increasing regulatory scrutiny, data privacy compliance is a major concern. Buyers sometimes underestimate the complexity of the target’s compliance landscape, especially if operating across multiple jurisdictions. Failure to address privacy gaps can lead to costly penalties and reputational damage.
Understanding the skills and stability of the target’s IT team is vital. Buyers may overlook key personnel risks, such as the potential loss of critical IT staff after the deal closes, which can jeopardize system maintenance and integration efforts.
Assessing the robustness of disaster recovery (DR) and business continuity (BC) plans is often neglected. A weak DR/BC strategy can lead to prolonged downtime during integration, affecting client service and revenue.
Buyers sometimes fail to fully evaluate how well the target’s IT systems will integrate with their own. Misaligned platforms, data incompatibilities, or differences in technology standards can increase integration timelines and costs.
M&A IT due diligence is a critical, yet often underappreciated, component of successful mergers and acquisitions. Buyers who overlook key technology risks can face unexpected costs, operational disruptions, and security breaches after the deal closes. By conducting a comprehensive IT risk assessment and merger technology audit, buyers can uncover hidden issues, better plan integration strategies, and ultimately protect the value of their investment.
If you are preparing for an M&A transaction, ensure your due diligence team includes experienced IT professionals who understand the complexities of IT systems and cybersecurity risks in M&A.