Systems hamper mergers as integration costs put off prospective buyers

Poor IT due diligence can put mergers off

Ineffective due diligence in technology can hinder corporate merger and acquisition (M&A) projects when potential buyers cannot see the clear picture of a company’s systems, say analysts.

Businesses need to provide comprehensive information to bidders during the assessment of its IT, said Roy Illsley, senior research analyst at Butler Group.

“It is all about presenting what the acquirer is looking for and allowing them to drill down into details of what matches their needs,” said Illsley.

He said that any organisations involved in a merger will want to rapidly reduce spend in IT, and that organisations which load their IT infrastructure with internal processes and make it as complicated as possible are creating a barrier to acquisition.

“Intricate structures make it very difficult to see the value that can be gained during due diligence assessments, and to establish the costs that may be involved in restructuring IT and merging it with that of another organisation,” said Illsley.

He said the rule of thumb when being evaluated is to identify future workload and cut costs by decommissioning redundant systems.

“A data model is one of the key tools to help companies about to go into an acquisition process,” said Illsley.

Media reports claimed that fashion business LK Bennett was valued at £150m after it invested in IT including fulfilment and e-commerce systems. But the price tag of its imminent sale is now said to be £100m.