IT Policies

Preparing for IT due diligence

To maximize the productivity of IT due diligence efforts following an acquisition, tech leaders must have several documents in hand before going onsite at the new company. We'll outline the process, and we'll provide a few tools to keep you organized.

In the first of my seven-article series on due diligence, I explained the basic approaches to performing due diligence following a company acquisition.

In some respects, due diligence is synonymous with “assessment” or “discovery." Much discovery of a company’s technology capabilities and environment will typically take place at the acquired company’s site. To be effective, and to maximize productivity, tech leaders need to be organized and have several documents in hand before setting out.

Gathering required documents
There are four steps to due diligence preparation:
  1. Sending an IT request list to the acquired company
  2. Compiling an onsite discovery process outline
  3. Conducting a review of the requested materials
  4. Scheduling and coordinating the onsite visit

While I’ll focus on due diligence in the acquisition scenario, CIOs should keep in mind that they can use this process to conduct almost any IT assessment.

IT request list
Prepare for the onsite visit by learning as much as you can beforehand. As soon as the Letter of Intent to acquire the other company is signed and agreed upon, your company should send due diligence discovery lists to the other company. One of those request lists should be for technology information.

There are hundreds of items tech leaders can request, but you don’t need to learn everything about the company’s technology at this stage. Keep discovery efforts to vital issues, including:
  • Technology in place
  • Stability
  • Growth capacity
  • Support methods
  • IT organization
  • Contracts
  • Software ownership and licensure
  • Costs
  • Ongoing support costs
  • Key investments planned
  • Capital investments needed
  • Planned initiatives
  • Risks
  • Client satisfaction and needs related to technology

The IT due diligence request list provides plenty of insight prior to an onsite visit. You can download the list, as well as six other free tools, from my Web site.

Onsite discovery process outline
It’s helpful to touch base with the key contact, usually the CIO, at the new company before the onsite visit. The primary goal of this discussion should be to help him/her understand the discovery process and the information you’ll be seeking.

To facilitate this conversation, I have developed an onsite discovery outline that helps my key contact understand what I’m looking for so he/she can prepare for the onsite visit, and also gives me a guide to follow so I can stay on track in my discovery efforts.

The more your key contact knows about what you need, the more productive the visit will be. Yes, it allows the other company to prepare more fully and to make efforts to “clean up” a little, but that’s not all bad. Your observation skills should help you determine if things have been “cleaned up” for your visit. A good tool I developed to have on hand is the IT Business Assessment Checklist.

My primary objective in any due diligence effort is to maximize the opportunity to discover relevant issues surrounding the company’s technology in as productive a manner as possible.

Review of the requested materials
Ideally, you will receive most of the requested materials prior to your visit and have time to review the materials before going onsite. Organize any questions you had as a result of your review to gain more insight during your visit.

I can’t emphasize enough the need to review and do homework prior to the visit, for several reasons:
  • It familiarizes you with the company and creates questions for which you'll need answers.
  • It will increase both parties' productivity during the onsite discovery process.
  • It will give you credibility as someone who is prepared when you walk in the door. Remember, there is a good chance that the new company’s IT organization will report to you or that you will work closely with the IT staff after the acquisition.

Coordinating the onsite review
Prior to the visit, I always call my IT contact at the new company. The following is an outline of a typical discussion:
  1. I introduce myself, and I explain my role in the company and that I will be conducting the technology part of the due diligence.
  2. I discover a bit about the individual’s background and his/her role in the company.
  3. I discuss the IT due diligence process.
  4. I introduce the IT Business Assessment Checklist.
  5. We discuss how the manager (my key contact) will explain my presence onsite. You had better have an answer planned if you want to keep the company’s acquisition plans confidential.
  6. We discuss the initial interviews that I want set up so that my contact can schedule them for the first couple of days. I always try to begin with senior management first, as it is helpful to learn of their goals and objectives and the IT department’s client perspectives before talking to IT managers.
  7. We exchange contact information, including cell phone numbers. We now depend upon one another to conduct an effective due diligence.
  8. I may ask a few questions based upon what I’ve learned from reviewing the materials. This is also an opportunity to emphasize certain areas of discovery based upon my current understanding of the new company.
  9. I give my contact an opportunity to ask questions.
  10. We schedule the visit.

In the next article in this series, I’ll outline and discuss the onsite visit and explain why discovery is different in every situation. I’ll provide you with tips I use to help me get to the real issues to ensure a smooth merger.

Mike Sisco is the president of MDE Enterprises, an Atlanta-based IT management training and consulting company. For more management insight, take a look at his IT Manager Development Series.


What’s coming up
Here’s what future installments of Mike Sisco’s due diligence series will be examining: 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 is not 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 focuses 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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