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IT due diligence.
Validate synergies and risks and keep an eye on integration

The purchase or sale of a company is a far-reaching event. This also and especially applies to the IT departments involved. The top priority for the IT sector is undoubtedly to ensure trouble-free IT operations after the transfer of ownership (Day 1).

n the time-consuming Mergers & Acquisitions (hereinafter referred to as M&A) transaction planning, it is not always taken into account that many other value- and success-relevant topics are also anchored in IT that should be included in the IT Due Diligence Scope. A recent study by McKinsey shows that 50% of the planned M&A synergies are directly or indirectly made possible by IT. According to a similar Ernst & Young study, more careful IT due diligence would have resulted in better financial performance in 47% of transactions. In addition, 26% of respondents stated that the acquisition targets were not achieved due to IT. Above all, the IT expenditure after the closing was clearly underestimated in advance, both in terms of finances and time expenditure.

These findings coincide with our own experience in the M&A environment. This showed that insufficient consideration of IT can have numerous serious negative consequences for the execution of M&A processes. This includes missing licenses and usage rights as well as problems with the continued operation of environmental systems, for example access systems or systems for time recording. The cost of providing integrated IT is also often underestimated. After all, there is often a lack of know-how for own applications.

The possible consequences are manifold and range from renegotiations to shutdowns and delivery interruptions. In the worst case, the deal as such is at risk.

Definition: The term due diligence review refers to a carefully conducted risk assessment carried out by the buyer of investments (in the target company) or real estate. The seller is also well advised to carry out a DUE DILIGENCE, because it naturally improves the negotiating position if risks and weak points are discovered and, if necessary, also eliminated before the buyer side uncovers them.

In an increasingly complex business world, differentiated due diligence reviews have also emerged and the term is now used more widely. In addition to financial due diligence, there is also real estate due diligence, environmental due diligence, technical due diligence and IT due diligence. Since the majority of transactions are now processed digitally, a risk assessment in the IT area before a company takeover by experienced accountants and IT experts on the buyer and seller side is highly recommended.

IT due diligence – risk analysis before the transaction.

This contradicts the conventional view of the role of IT, as expressed in a study by Forbes in 2014, where IT is only mentioned very generically as a single subitem in the topic of technology among the 20 most important topics (finance, real estate, environment, technology, etc.) in a due diligence.

Instead, the results listed above show that IT plays a decisive role in the smooth integration of systems and even more so for the long-term success of a transaction. The identification of IT weaknesses through a careful risk assessment by IT experts and experienced auditors can determine the success or failure of a company takeover.

Both can be ensured above all within the scope of due diligence. This is the earliest phase in an M&A transaction process. The purpose of their implementation for the buyer is to gain insights into the object of purchase relevant to valuation.

An IT Due Diligence is specifically dedicated to the infrastructure and organization of IT in the target company. The following objectives are to be achieved:

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  • Assessment and review of opportunities and risks for operational operations
  • Advice on the drafting of contracts for company acquisitions
  • Initial assessment of costs and conception of a possible integration into the new IT environment

The basis for a due diligence is the seller’s documents, records and analyses.

Due diligence is characterized, among other things, by the following characteristics:

  • Narrow time frame
  • High costs

Both make it all the more important to make clever use of existing resources and to proceed strategically.

GAMBIT is happy to contribute its many years of experience from a large number of strategic IT carve-out and IT post-merger integration projects to commercial due diligence. In doing so, we focus not only on the IT infrastructure and organization of the purchase object but also that of the buyer in order to identify synergy potentials, possible conflicts and potential deal breakers in a company acquisition in advance.

IT Due Diligence buyer side: – eliminate risks and maximize synergy effects IT due diligence. Do not leave success to chance

IT due diligence. Do not leave success to chance

On the buyer side (buy-side), a carefully conducted IT due diligence ensures that risks and opportunities from IT and IT-supported processes are identified at an early stage.

den-erfolg-nicht-dem-zufall-ueberlassen

In this way, the buyer avoids unpleasant consequences such as unplanned additional expenses, e.g. to ensure day one readiness, unresolved liability issues if, for example, licenses suddenly do not form part of the contract, or the calculated synergies, for example in purchasing or IT operations, cannot be realized unexpectedly after all. All in all, this can go so far that the entire acquisition would have to be called into question retrospectively.

Gambit IT Due Diligence provides you with a realistic assessment of the opportunities and risks associated with an acquisition and thus the future security of your investment. Your particular advantage: We offer you the entire IT M&A process chain from a single source, from due diligence to planning and implementation of carve-outs or post-merger integration. Leave nothing to chance and thus increase the effective return on your investment!

IT Due Diligence – in search of deal breakers.

The results of the IT due diligence provide information on the complexity of a possible post-merger integration as well as indications as to whether the IT-technical prerequisites for leveraging the planned synergies are given.

This gives the buyer more security in contract design and pricing and also provides initial indicators of how complex the integration of the IT of the acquired company into the IT of the new parent company will be. In many complex cases, transition service agreements must also be concluded because it is not possible to completely detach the processes from the seller’s area of responsibility.

A GAMBIT IT Due Diligence gives you additional information about the costs associated with the integration of IT. This is another important indication of whether your investments will pay off in the long and short term and helps you with the calculation. This allows you to enter into price negotiations in a relaxed manner and achieve well-founded results. At the same time, you will not experience any nasty surprises on day 1.

The GAMBIT IT Due Diligence considers the following aspects, among others:

With a GAMBIT IT Due Diligence we pursue the claim to enable you to process an M&A transaction without surprises. In this sense, we look at potential deal breakers as well as synergy potential and the financial and time requirements of integration.

This includes in detail:

  • Comprehensive analysis of the IT organization of the company to be purchased
  • Evaluation of the IT strategy of both companies and its synergy potential
  • Evaluation of employee-related special knowledge (Key-Man-Risk)
  • Examination of the application landscape for potential risks in a later integration (e.g. release status, in-house developments)
  • Inventory of existing IT infrastructure
  • Assessment of risks and recommendations for price-reducing clauses in purchase contracts
  • Financial needs assessment (CAPEX/OPEX)
  • Achieve a smooth transition transfer on day 1 without disruptions (Day1 readiness)
  • Recommendation for Transition Service Agreements (TSA)

Vendor Due Diligence – The vendor side of IT Due Diligence

Not only buyers but also sellers benefit from a Gambit IT Due Diligence. In this way, we help the latter to eliminate potential weak points by carefully examining them in advance. This sometimes has an impact on price negotiations and also simplifies the entire process. Of course, we pay special attention to deal breakers, which can endanger the sale as a whole.

Vendor Due Diligence – So that IT does not become a spoilsport

On the buyer side, the potential of IT for the success of the M&A transaction is usually perceived more strongly than on the seller side.

However, there is also untapped potential there: a well-planned vendor due diligence can secure the potential sale proceeds of the planned divestment by identifying risks and eliminating weak points, thereby simplifying and accelerating the carve-out.

Vendor due diligence often reveals weak points that are not yet known to the seller. This is particularly important in the run-up to a planned IPO of the company. By becoming familiar with them in good time, you will improve your starting position for the upcoming negotiations, not least the price negotiations. But these tactical advantages are not the only ones of a vendor due diligence. In addition, this check often even gives you the opportunity to eliminate weak points in good time.

Finally, a vendor due diligence often has a positive effect on the M&A process itself. The extensive data material that we provide through our analyses enables you to ensure a smooth transition, as well as smooth business processes afterwards. This benefits buyers and sellers alike – even in the event of a planned IPO of the company. This makes vendor due diligence by GAMBIT an insurance policy for buyers and sellers.

Identify risks before the buyer does.

On the seller side, it has proven itself many times over to identify any value or legally/fiscally relevant problem points in a vendor due diligence before the sale is marketed and to subject them to a careful examination. This is usually done for the entire transaction and consequently also for IT topics.

This enables potential deal breakers, weak points or gaps to be eliminated at an early stage. The seller thus avoids that these open points, which the buyer side will assess as a risk, burden the negotiations or lead to a value erosion.

If you decide on GAMBIT IT Due Diligence as a seller, you will have the opportunity to reduce risks in a targeted manner and thus acquire a better starting position for negotiations. This includes identifying and strengthening synergy potentials. And even if you do not succeed in eliminating all risks or weak points in good time before the sale: It has a positive effect on the basis of trust between you and the buyer if you have already taken the first steps in this direction. This gives you the opportunity to act proactively and avoid unpleasant surprises afterwards.

The advantages of a vendor due diligence in summary:

  • Identification of possible legally or tax-relevant problem points
  • Possibility to eliminate weak points, gaps and deal breakers in time
  • Creation of a positive basis of trust towards the buyer
  • Avoidance of unnecessary stress and value erosion
  • Acceleration of the M&A process and ensuring smooth business processes
risiken-erkennen-bevor-kaeufer-es-tut

Vendor Due Diligence: The Dealbreaker’s Death

Depending on the divestment strategy and buyer target group, the vendor due diligence can go so far as to logically separate the unit in IT. This at least simplifies the IT carve-out considerably. GAMBIT differentiates itself in its vendor due diligence by drawing on experience from many IT carve-outs. Thus GAMBIT knows exactly which potential pain points have to be considered and eliminated.

These can look like this:

  • Future viability of IT in the company: What is the technical status of IT? Can the systems be expanded with further growth or will the development reach its limits?
  • Integratability of the IT systems: Can the IT be integrated by the buyer without a serious risk of error? What is the compatibility with known software solutions (e.g. SAP)?
  • Synergy potential: Do synergies result from the merger and what do they look like? Are problems of the IT architecture in the way of using the synergies?

In addition to possible deal breakers in the IT area, we naturally also focus on other problem areas in a vendor due diligence. In this way, potential deal breakers such as serious legal risks from contracts, patent disputes or the expiration of intellectual property rights can be identified as well as financial risks of certain projects. By knowing these weak points early on, you can often eliminate potential deal breakers before they get serious.

The GAMBIT vendor due diligence considers the following aspects, among others

The GAMBIT Vendor Due Diligence is dedicated to potential weaknesses as well as to one’s own potential with regard to company acquisition. Special attention is paid to potential deal breakers. In addition, a vendor due diligence process contributes to the smooth running of Day 1.

The aspects in the summary:

  • Detailed elaboration of own strengths
  • Investigation and elimination of deal breakers and legal loopholes
  • Objective assessment of the separation potential
  • Overall IT analysis for passing on to potential interested parties
  • Risk assessment to strengthen position during purchase price negotiations
  • Smooth Day 1

IT due diligence - risk analysis before the transaction.

The purchase or sale of a company is a far-reaching event. This also and especially applies to the IT departments involved. The top priority for IT is undoubtedly to ensure trouble-free IT operations after the transfer of ownership (Day 1).

GAMBIT is happy to contribute its many years of experience from a large number of strategic IT carve-out and IT post-merger integration projects to commercial due diligence.

Purchasing side: IT due diligence.
Don't leave success to chance

On the buyer side (buy-side), a carefully conducted IT due diligence ensures that risks and opportunities from IT and IT-supported processes are identified at an early stage. IT Due Diligence - in search of deal breakers.

This gives the buyer more security in contract design and pricing and also provides initial indicators of how complex the integration of the IT of the acquired company into the IT of the new parent company will be. In many complex cases, transition service agreements must also be concluded because it is not possible to completely detach the processes from the seller's area of responsibility.

The GAMBIT IT Due Diligence considers the following aspects, among others:

  • Comprehensive analysis of the IT organization of the company to be purchased
  • Evaluation of the IT strategy of both companies and its synergy potential
  • Evaluation of employee-related special knowledge (Key-Man-Risk)
  • Examination of the application landscape for potential risks in a later integration (e.g. release status, in-house developments)
  • Assessment of risks and recommendations for price-reducing clauses in purchase contracts
  • Recommendation for Transition Service Agreements (TSA)

Seller side: vendor due diligence
So that IT does not become a spoilsport

On the buyer side, the potential of IT for the success of the M&A transaction is usually perceived more strongly than on the seller side.

However, there is also untapped potential there: a well-planned vendor due diligence can secure the potential sale proceeds of the planned divestment by identifying risks and eliminating weak points, thereby simplifying and accelerating the carve-out.

Identify risks before the buyer does.

This enables potential deal breakers, weak points or gaps to be eliminated at an early stage. The seller thus avoids that these open points, which the buyer side will assess as a risk, burden the negotiations or lead to a value erosion.

Vendor due diligence.

The Dealbreaker's Death

Thus GAMBIT knows exactly which potential pain points have to be considered and eliminated.

The GAMBIT vendor due diligence considers the following aspects, among others:

  • Detailed elaboration of own strengths
  • Investigation and elimination of deal breakers and legal loopholes
  • Objective assessment of the separation potential
  • Overall IT analysis for passing on to potential interested parties
  • Risk assessment to strengthen position during purchase price negotiations
  • Smooth Day 1