Mergers and acquisitions (M&A) are complex and not just due to financials, legal compliance and market positioning. More and more, getting technology alignment right proves to be a marker for M&A success. Failure to integrate IT systems, infrastructure and digital strategies can increase operating costs and lead to long-term term issues.

This post explores the importance of IT due diligence, along with how aligning digital strategies after the acquisition helps drive value, and what the risks are from misaligned IT in mergers and acquisitions.

Technology Due Diligence for Private Equity

Download this guide to discover key questions to evaluate the existing technology of potential acquisitions, along with ways to fast-track time to value.

The Role of IT Due Diligence

IT due diligence is crucial to understanding potential risks, identifying challenges to system integration, and determining if existing systems can facilitate the organization’s business goals. Below are key reasons why effective IT due diligence should be a key part of the M&A process.

Why is IT due diligence important?

Uncover Hidden Risks: Cyber threats have increased significantly over the past few years, affecting the manufacturing industry especially. Whether from outdated infrastructure or unsupported legacy systems, inadequate cybersecurity practices pose risks to operations and regulation compliance.
Understand Integration Complexity: What will be involved in bringing disparate systems, teams and processes together? From ERP and CRM software to financial systems and customer service or marketing platforms, integrating company systems into those of the acquirer may require significant costs.
Gauge Scalability: If the company’s technology is unable to support goals for future growth, further investment will be required.
Protect Data Assets: Data privacy regulations such as GDPR and CCPA make due diligence even more important, in order to avoid penalties if customer and operational data isn’t stored and secured correctly.
Evaluate Operational Maturity and Efficiency Gains:
Assessing the operational maturity of a target company’s IT environment can reveal opportunities for streamlining and cost savings after the acquisition. Mature IT operations—marked by standardized processes, automation, and strong performance metrics—enable reduced technical debt and greater business agility. This insight helps build a clearer picture of the acquisition’s true value and potential.

By conducting robust IT due diligence, acquirers gain a clearer picture of not only assets, but capabilities and liabilities as well. 1

“By gaining insight into the infrastructure’s age, capacity, and associated costs, acquirers can avoid unwelcome surprises that affect both operating expenses and capital expenditure.”

Tom Allen - IMMA

The Cost of Misalignment During M&A

When IT systems and strategies aren’t aligned during M&A, the consequences can be severe. Here’s what can go wrong:

Delayed or Missed Benefits Gains

Without a smooth IT system integration, anticipated benefits such as cost savings or operational efficiency can be delayed or even fail entirely. Without streamlined processes and proper data governance, teams may struggle to communicate and key decision-making could be slowed.

Increased Costs

Misaligned systems can often lead to unexpected expenses from areas like hardware upgrades, data migration projects or software license fees, to name just a few. Plus, your company may need to hire outside assistance or additional IT staff to manage the integration challenges.

Disruptions and Reduced Productivity

System downtime, inconsistent data, and process bottlenecks can all result from misaligned IT systems, impacting day-to-day operations. Over time, these inefficiencies can reduce productivity and undermine the expected benefits of the merger.

Aligning IT and Digital Strategy After the Deal

The work doesn’t stop when the deal is signed. Maximizing value—or not—depends on what happens during post-merger integration (PMI). During this phase IT systems are aligned and strategies set to bring the companies together.

Strategic IT alignment steps:

Get the lay of the land: Understand the current state of IT assets, capabilities and processes, determining where overlap or gaps exist.
Outline your goals: Determine your end goal, aligned to your overall business goals. Do you need to fully integrate systems or keep them separate?
Develop a roadmap: Outline the plan to unify processes and technologies, based on the current state and desired future state. Include guidelines for governance, change management and KPIs to ensure smooth implementation and alignment with business goals.
Include stakeholders: Ensure that personnel understand the reasons for changes to the IT systems, how they’ll be affected, and what to expect during the process. Include a schedule for regular updates, training plans and channels for feedback.
Measure your progress: Perform regular reviews to monitor status and help identify delays, adjust priorities, and ensure alignment with your overall integration goals.

A successful IT integration can lead to faster returns from the merger, reduced operations costs, and streamlined systems that support your business goals.

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Conclusion

It’s no secret that technology is key to gaining and maintaining a competitive advantage. And during M&A, success depends not just on completing an acquisition, but on effective alignment, integration, and optimization of those technologies to unlock their full value.

Ultra helps private equity firms with technology alignment, integrating acquisitions into unified software platforms. Our experts can help you improve the performance of an acquired firm while ensuring a smooth transition. This enables your portfolio companies to quickly realize value, reduce risks, and drive long-term growth. Learn more by scheduling your free discovery call today.