The objective of any M&A due diligence is to reduce buyer exposure by providing the basis to make informed M&A decisions. When post-merger plans call for maintaining an autonomous technical environment, meeting this objective necessitates using a Current State Evaluation due diligence approach.

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The focus of a Current State Evaluation is on understanding the target’s existing Information Technology (IT) proficiency and risks. The evaluation is comprised of four areas of concentrated discovery known as IT Due Diligence Focus Areas. These four areas represent a complete cross-section of a corporate IT environment.

Each area is evaluated using methods carefully selected to facilitate a rapid, yet accurate, assessment to meet the time demands of dealmakers. This requires using different methods for each.

IT Due Diligence Focus Areas:

Organizational Evaluation – During this evaluation, the organization’s IT management and senior most technical experts are evaluated as a leading indicator of the technology organization. The evaluation concentrates on job qualifications such as experience level and technical aptitude.

Processes & Routines – Here, extracts of the COBIT framework are used as a basis to analyze the 34 functions that define the activities performed by an IT organization. Each is evaluated on sophistication level and effectiveness.

Application Portfolio Evaluation – This focus area leverages software quality analysis guidelines outlined by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). The emphasis is on determining an application portfolio’s “quality” using 25 pre-defined measurement criteria.

Infrastructure Evaluation – Spot-checks are used to examine the underlying nuts and bolts that support a company’s IT such as the network and servers. The evaluation is centered on areas that could represent buyer exposure or lead to post-merger issues.

The correlation between the focus areas ensures thoroughness and provides a critical congruency function. After conducting these evaluations, IT due diligence analysts will have discovered either positively or negatively:

1. If the IT management and technical experts are qualified for their positions.
2. If the IT organization’s talents are being properly applied through sound processes to deliver services, mitigate risk, and contain costs.
3. And, if the applied talent and processes are “resulting” in effectively deployed IT that is appropriately aligned to meet business objectives.

Throughout the evaluation, additional scrutiny is given to key risk factors such as information security, staff flight, and compliance adherence. Factors that have historically resulted in financial exposure and/or post-merger issues are also given additional scrutiny.

Armed with this quantifiable insight into a buyer’s technology risk factors, IT due diligence analysts are able to provide dealmakers actionable-intelligence that gives them an edge at the bargaining table. A valuable advantage that contributes to achieving a successful transaction and a positive post-merger valuation!

Continue to posting-4 of our ongoing series on M&A Technology Due Diligence, Technology Due Diligence – IT Leadership Assessment – Staffing Proficiency