IT Due Diligence
Sustainable success in M&A transactions
With an increasing degree of digitization, IT now plays a crucial role in business processes. Digital business models become more important every day. This concerns innovative Startups as well as traditional manufacturing methods within Industry 4.0. Furthermore, business relations with customers and suppliers are often fully automized.
In order to estimate the value of a company, its IT structures and processes have to become fully comprehensive. Only this way you can detect risks and opportunities and balance pros and cons. For this reason, IT Due Diligence has become a crucial separate audit next to Financial Due Diligence, Commercial Due Diligence, and Legal Due Diligence. IT Due Diligence analyzes the operative and strategic requirements of IT and compares them to existing structures. The strength and weaknesses of the target are documented within an IT Due Diligence Report. Furthermore, we offer AI Due Diligence if you are planning on investing in Artificial Intelligence
Especially digital enterprises are marked by a high number of IT positions within Financial Due Diligence. A previous IT Due Diligence provides basic information for the evaluation of these positions. Specifically, this intellectual property and the choice of the right, future-proof and scalable technologies can be an important competitive advantage for successful synergies.
A systematic survey and analysis of IT have become increasingly important for many companies. With an IT Due Diligence, you can extensively observe all relevant technical aspects as well as their chances and risks.
A Commercial Due Diligence, however, focuses on processes of business administration, which complicates an accurate assessment of information technology. Observing this actual state existing risks for a company’s growth are often overlooked.
Nonetheless, company growth, the development of customer value, and the scaling of the business model are important factors for Private Equity. IT Due Diligence is furthermore important to large businesses, that want to improve existing internal business processes or products after the acquisition of a young digital company.
The subsequent post-merger phase marks another challenge. However, this can be planned easily with extensive IT Due Diligence. In this process we provide, potentials for synergies and risks of integration of an M&A transaction.
In both cases the digital scalability of the business model is indispensable.
Classical elements of an IT Due Diligence contain the analysis of the IT organization, of IT processes, and of private data protection and data security. These are the components of an IT Due Diligence checklist. To avoid possible risks, all IT-related technologies and organizational components need to be evaluated carefully. This ensures that increasing requirements for the high availability of IT systems are always met. Another element is the protection against hacker attacks, in which organizational errors often remove technological measures. This step also observes the IT’s cost structure within the current timeframe and for future scaling.
Opposed to this, an evaluation of standards on the buyer’s side may become important to assess the effort for the integration of an acquisition. Thus, possible scenarios of acquisition can be simulated prior to the deal. This process can detect and avoid a failed or delayed integration, due to badly adjusted standards or systems.
With an increased degree of digitization, the number of distributed computing for IT processes is also on the rise. This IT infrastructure becomes visible in networking and division of tasks between work computer and server. Hybrid solutions between cloud, hybrid cloud, and the internal data center may be used on top of that. In this case, a risk analysis must include the network infrastructure and network security. The dimensioning and sustainability of these distributed systems are also assessed within the margin of an IT Due Diligence.
The success of such an extensive audit of IT can only be guaranteed through longstanding experience and expertise.
Project Management is crucial to the further development of a digital business model within the areas of IT operations and IT development. Especially when planning rapid growth or the adoption of additional business areas, processes and indicator systems must be able to support this growth.
In this process, an extensive IT Due Diligence audit should intensively analyze on-site processes as well as existing results. Due to our long-term experience, we are able to analyze distinct systems of project management and evaluate established procedures.
Audits of start-ups within the field of real-time trading (Fintech, Adtech), Industry 4.0, Big Data, and Analytics may become an additional challenge, as IT systems become more complex each day. Modern trends, such as AI, Machine Learning, Cloud Computing, or Blockchain are key in this process. Without a separate IT Due Diligence and the required expertise, the influence of such technologies on the target’s IT is very hard to understand. For this reason, complex IT systems have to be audited by experts. Only with the right amount of knowledge on this topic, the importance of complex technologies for the economic success of a company can be evaluated realistically.
During a so-called code-review, we assess the sustainability of developed technology and solutions. We analyze the structure and scalability as well as possible alternatives. If desired we include experts from your team in this process. In the end, you will have an evaluation of the intellectual property as well as the chances and risks of the technology.
With an IT Due Diligence, a vendor can detect and evaluate risks and their influence on the companies values prior to the sale and have the risks audited externally. For the possible buyer of digital companies, IT Due Diligence and Technical Due Diligence are crucial audits next to economic ratios.
With this audit, the scalability of business models and the operative security are assessed. These processes cannot be replaced by a pure Commercial Due Diligence without any risk, as insufficient automation and risk affinity can have direct negative consequences for operating safety and scalability.