IT Best Practices for Financial Managers

Chapter 16. The Importance of IT Due Diligence during a Merger or Acquisition

Pavel Krumkachev

Indira Gillingham

Shalva Nolen

Due diligence is a major prerequisite of any merger and acquisition (M&A) deal and helps lay the foundation for post-merger integration success. Through a thorough process used to conduct due diligence, potential synergies and ease of integration can be determined, arming the post-merger integration teams with adequate knowledge to immediately begin planning once the deal is officially announced. One of the primary objectives in the due diligence phase is to accurately identify synergy targets with the goal of refining them as the M&A transaction moves forward. A secondary objective of due diligence is to analyze the information technology (IT) environment to gain insight into the effort and scope involved with integration.

Identifying and accomplishing these objectives is not a straightforward exercise. Lack of access to accurate and recent information as well as compressed time frames pose obstacles and impact the level of detail and accuracy of synergy estimates and IT integration effort analysis.

In this chapter, we will attempt to demystify the process of IT due diligence, explain its value, and provide practical advice on ways to effectively perform the due diligence exercise.

Why Bother with IT Due Diligence?

To answer this question, one needs to look no further than the reasons that most large M&A transactions fail. In many cases, insufficient information ...