Failure To Consider IT Damages M&A Prospects

M&A

IT considerations are not given adequate attention or rigour in the due diligence prior to mergers and acquisitions, a new report has revealed. The survey of 220 senior corporate and private equity executives found that only half the respondents conducted separate pre-deal IT diligence for their last transaction, and only 21% of corporate and 11% PE respondents include technology-related considerations in their transaction negotiations.

The study demonstrates that failing to make provisions for the IT challenges associate with successful M&A can lead to value erosion or, indeed, deal failure. 47% of those surveyed said that in retrospect more detailed IT due diligence could have prevented value erosion. Furthermore, IT can be a key vehicle for growth and value creation if leveraged effectively in transactions.

Technology needs to have a seat at the M&A table in order to deliver real value. One of the most common issues we see in terms of transaction stresses is not involving IT early enough in the process. The survey found that only 50% of respondents said they typically involve IT in the transaction process – compared to nearly 80% who involved the finance department.

A significant minority of those surveyed reported inaccurate cost estimates and timescales as a result of not recognising technology’s role in the M&A process early enough. Indeed, 20% of respondents recognised IT as one of the most challenging areas to deal with post-transaction despite the significant potential for lost value.

Strategic IT expertise is now central to delivering a deal – and if this isn’t available on both sides of the fence in-house, it needs to be bought in. Approximately half (48%) of respondents engaged third party advisers for the pre-deal IT due diligence and more than half (55%) did so for the post transaction phase.

It’s about connecting IT issues to the strategic motivation for the deal. If IT is included in the due diligence stage, it can help a deal move from integration to innovation. Respondents consistently pointed to Day One business continuity and data migration issues as major challenges. The research clearly shows the importance of planning for Day One with a view to getting smoothly to Day One Hundred, and honestly assessing the skills needed to make that journey.

Michel Driessen is the Lead Partner of Operational Transaction Services at Ernst & Young. Over the past 24 years Michel has assisted several high-tech, financial services, retail, software, media and industrial products clients take advantage of strategic and operational opportunities. He has significant experience in managing transactions throughout the transaction lifecycle for buy-side, sell-side, and joint-venture transactions on Corporate and PE clients. He is fluent in English, German, French and is a native speaker of Dutch. Prior to joining Ernst & Young Michel has worked for a number of blue chip companies in which he has held management positions. Michel has a MBA from University of Bradford (with distinction), an MA degree in Political Sciences from Radboud University of Nijmegen and he is also a senior visiting fellow of the Cass Business School.

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