Banking

IT due diligence: The on-site discovery visit

In IT due diligence, preparation is key to a successful on-site visit. Mike Sisco points out that this prep work can directly affect how much information is gleaned and help your efforts to build a strong IT relationship with the acquired company.


A key element to due diligence success, as I explained in part one of this series, is taking every step possible to understand your company’s objectives in acquiring a new company before you make an on-site visit. You also need to know if there are key assumptions pertaining to the company, specifically as they relate to the company’s technological capabilities or dependencies. I mapped out this aspect of the process, and the importance of using a Technology Due Diligence Request list, in part two of the series.

At this point in the process, you will have reviewed the materials requested and be ready to schedule the discovery visit. I’ll map out the best approach to take to get the most relevant information from the due diligence visit, and provide some insight on best practices.

Establish your identity
Before you visit the company, you should establish an appropriate identity for yourself and the purpose of your visit. Employees at companies being acquired can react to a due diligence visit various ways. While management at some organizations may be comfortable publicizing that the company is exploring a merger and a due diligence team will be visiting, others keep this data under tight wraps and don’t alert employees until the last minute. After all, if the merger falls through, the company may have opened up everything about its organization to its chief competitor.

Typically, the company being evaluated requests that due diligence teams visit “anonymously.” To do so, you must develop a strategy with the senior management of the company you’re visiting to establish an appropriate identity and purpose for the visit. I’ve often visited under the guise of a consultant who has been brought in to conduct an IT assessment for the company.

Before the visit, remove all identifying information from clothing and business bags. For example, a company ring, pin, or ID tag on a briefcase can be a quick giveaway if your diligence team is from a known competitor.

Review objectives and go in with a plan
Before you go on-site, create an initial plan of attack. Break the due diligence into seven parts. Every interview and review must consider these issues:
  1. Current IT operation
  2. Risks and risk avoidance plans
  3. Financial plan (expected cost and budget to continue operation)
  4. Capital investment requirements
  5. Leverage opportunities and recommended plans
  6. Transition plan
  7. The due diligence report

Keep the IT due diligence phase in perspective with the entire acquisition project. Figure A illustrates where due diligence fits with a company acquisition.

Figure A


Start high and work your way down—it always helps to have senior-level management perspective first. I always begin interviewing at the highest level possible and work my way down. Every interview will generate new questions and identify issues that you’ll need to validate or better understand. Your on-site visit needs to provide you with sufficient information that:
  • Defines how you will operate IT after the merger.
  • Identifies the operating costs required.
  • Defines major investments and initiatives required.
  • Identifies all key risks so you can plan risk avoidance initiatives.

I try to schedule interviews with key managers—executives, senior operations management, key department managers who are heavy users of technology, and the senior IT manager—for the first two days. You should have a prepared list of questions, including specific questions relating to the due diligence material you’ve reviewed before the visit. These interviews will expose issues that will typically require further investigation. If an issue potentially has business continuity risk or expense exposure, dig deeper until you know how relevant it is.

Stay focused and use a checklist. One tool I use to improve my productivity is the IT business assessment checklist. Review this with your key contact at the new company before the visit. The outline will help reinforce the discovery elements that you need to find as you work your way through the company’s technology environment.

Use due diligence discovery tools. Another tool that I developed to assist me in discovery is a set of 14 templates to help quantify findings. The templates provide an organized approach to collecting information on topics including business applications, infrastructure and servers (LAN and WAN), IT project initiatives, automation capabilities, license agreements and contracts, support agreements, leases, capital budget, and outside consulting/contract work.

Be courteous, professional, and thorough
Your due diligence visit is a first impression that reflects on you, your IT department, and the company you represent. Being acquired is a stressful and emotional time; it creates change without establishing exactly what the change will entail. Your actions, demeanor, and professionalism can mitigate much of the stress. One tip is to always use the term “merger,” rather than “acquisition.” Being acquired has a very different feel. Another tip is to speak on how the merger will strengthen both enterprises and how the synergy of the two entities will create additional opportunities for employees in the resulting company.

There are no wrong questions during due diligence discovery—just be tactful and considerate in how you ask them. Your job is to understand the state of technology in the company, dependencies on technology, risks, and IT costs to support the company going forward.

At the end of each day’s interviews, I always review my notes and fine-tune plans for the next day. This helps me to develop specific questions for the next group of interviewees.

Each morning, I meet with my key IT contact at the company to line up the resources that I want to focus on based on discovery to date. When you have downtime, use it to review requested due diligence documentation such as contracts and leases, discuss issues with other members of the due diligence team, or begin developing parts of your Due Diligence Report. In my next article in this series, I’ll discuss how to prepare that report.

Due diligence is hard work, but with planning and a few tools, you can implement a very organized approach that will help you learn what you need to know and establish a very professional relationship with future managers of your newly merged companies.

Mike Sisco is the CEO of MDE Enterprises, an Atlanta IT manager training and consulting company. For more of Mike’s insight into due diligence, take a look at his book titled Acquisition-IT Due Diligence in his IT Manager Development Series.


What’s coming up
Keep up with this series, which will examine the following issues:
Part 4: Writing the due diligence report: Creating a concise report that summarizes findings for the CEO and board while including enough detail for future reference isn’t easy. This installment will provide a report template to help you organize the details.
Part 5: Assimilation (the people side): This installment will cover the importance of handling staffing changes and concerns with great care, and how organizational transitions can create significant risk.
Part 6: Assimilation (the systems side): There is value in being able to eliminate redundant technologies, but it’s not as simple as converting everything to one technology. This article will focus on systems strategy and leverage opportunities.
Part 7: Measurements that make sense: How do you know if the technology organization is focused on leveraging the value of the new company after a merger is complete? This installment covers a few key measurements worth tracking.


 

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