IT Due Diligence Checklist
Retooling your business to match the present trend where useful information technology infrastructures are used in the everyday business process and managerial activities have become imperative. Aside from spending heavily on research and development to build a new product, one way to gain market entry, competitiveness, and an increased customer base is through merger and acquisition. To achieve this excellently, there are informative templates every business seller or buyer checks thoroughly before an acquisition, or a merger deal is followed through. That template is called a due diligence checklist.
Due diligence checklist is a documented overview of a business that is wholly evaluated. This step is critical to understand the viability of a proposed merger and acquisition deal. All relevant information about the company assets, liabilities, benefits, IT infrastructures and potential problems are unveiled during this period to determine the real value of the business.
What is an IT Due Diligence Checklist?
Information technology due diligence checklist which is also known as technical due diligence checklist is a drawn-up template stipulating checks that can give a critical summary of the information technology infrastructures available in the company set to be acquired through a merger or acquisition. It gives them time to appraise existing elements that make up the IT infrastructures, customer support, commercial activities and detect any potential security dangers. Other elements included in a due diligence checklist are IT personnel, software/applications, data, cyber and network security, IT hardware, internet protocol system, customer support system, company goods and services, and contract.
Why is a Due Diligence Checklist Necessary?
A due diligence checklist is a template designed to get every answer needed in a pre-merger and acquisition deal. It is designed to ensure that a holistic view of a business is obtained before the business is acquired. This business information is available on-demand and so, it should be collected and analyzed adequately to make an informed decision during the acquisition process. Some other reasons why a due diligence checklist is necessary include:
- A due diligence checklist allows you to know what obligations, liabilities, and litigations dangers you will assume after the merger/acquisition.
- With an adequate due diligence checklist, you can see and compare the features of each business, where they intersect, and how they can be beneficial to each other.
- The buyer can make projections on profits and estimate appropriately the cost of the integration using an IT due diligence checklist template.
The targeted business (sell-side) and the acquirer (buy-side) both conduct a technical due diligence checklist because of the points mentioned above and to arrive at an agreeable value for the deal.
On the sell-side, an IT due diligence checklist is carried out to identify and eliminate obstacles in the business processes such as cyber security lapses, IT recurrent downtime and litigations that can flag the deal. By identifying and correcting issues in the company before the buyer gets involved and conducts his due diligence, many errors can be corrected. It is also the right step to present a credible due diligence report to the buy-side who will also conduct an independent technical due diligence.
On the buy-side, IT due diligence is conducted for the buyer. This act is very essential to arrive at a merger and acquisition (M&A) deal. It provides an in-depth view of the target company’s IT capabilities, data protection and storage system, cyber and internet security. Furthermore, it identifies major IT-related risks that could have an impact on the business processes. Because of the sensitivity of the information, secure channels such as a secure data room have been developed so that the buyer and seller can share information in a secure fashion.
What is in a Due Diligence Checklist?
Many components make up a business structure which is all included in an IT due diligence checklist template. They include the IT personnels, software/applications, data, cyber and network security, IT hardware, internet protocol system, customer support system, and company goods and services.
Information Technology personnel
IT personnel perform multiple roles in a company including the management and maintenance of information technology infrastructures. In a merger and acquisition (M&A) deal, the IT due diligence checklist, takes into account the responsibility of each member of the IT unit. This will help the management to know if they fit into the future of the business and where they fit in. It will also provide complete knowledge of how the IT department is organized including the leadership structure.
Using the IT due diligence checklist, all existing IT infrastructure must be noted. This includes having an accurate IT hardware inventory record, a proper estimate of how much each hardware is currently worth, the model number, lifespan and the manufacturer. IT hardware includes desk phones, servers, storage devices, laptops, desktops, printers, tablets, etc. that are all vital in a work environment. This hardware, just like robots, eliminates stress in the work environment. By adopting a Proactive management approach in maintaining this hardware, time and resources can be saved in the long run.
After collecting all necessary information on available hardware, the same process should be repeated for software. Discover the data management system that exists, the antivirus software the company subscribes to, the operating systems running on each computer, the payroll software, customer relationship management software, and storage management system used.
Internet Protocol System
This section in the template examines the company’s current network and telecommunications server to learn how the computer systems in the organization are set up. More information collated from an IT due diligence checklist include partner internet providers and agreements that may exist, a complete diagram of the network set-up, and complete knowledge of the available storage backup system.
Cyber and Network Security
The network security of the company needs to be examined thoroughly to avoid inheriting a cyber and network architect with lapses that can’t withstand cyber or malicious attacks. With an IT due diligence checklist, more measures can be suggested to shore up the network facility for a secure online payment system, data encryption/safety, cyber security certificate, system vulnerability checks, network firewall defense setting and regulations, remote access software, background check findings on all employees, policy on the acceptable way to use hardware and software, and information on database record storage.
Customer Support System
One main objective of assimilating a business is to access the customer base of the business and develop strategies to consolidate on it. The company customer support system is a useful platform to develop ways the customer base of the target business can be engaged using software and hardware. It addresses the technical support customers might need and how best they can access this technical support. It also includes how to integrate new customers into the information technology system. The customer support system can also give insight into the general customer service workflow of the business.
Company Goods and Services
IT due diligence checklist recognizes and lists all the goods produced and services rendered by the company. In it also, the unique role of each unit\employees in this process is outlined.
Questions to Consider with a Due Diligence Checklist
The IT due diligence checklist template is created with some commonly asked questions that provide necessary and sufficient information needed before a merger or acquisition deal is reached. The questions border on Technology assets, Company information, Finances, Products and services, Customers, Internet Protocol assets, Physical assets, Legal issues.
- What is the ownership structure of the company?
- Who are the shareholders of the company?
- What are the company’s by-laws and article of incorporation?
- Where are the company’s reports from previous annual general meetings (AGM)?
- Who are the members of the senior management team and their individual responsibilities, salaries, and benefits?
Products and services
- What products and services does the company offer at the present and how are they performing relative to your market competitors?
- What are your strengths and weaknesses compared to that of your market competitors?
- Who are the company’s current raw material suppliers and product distributors?
- What and where is the customer base of the business?
- Where/in which region does the company product maintain dominance?
- What software and hardware IT assets does the company have and which currently have active software licenses?
- What is the cost of each IT asset?
- What data management system exists and how is it managed?
Internet Protocol Assets
- Does the company own any intellectual property- patent, trademark, copyright- and how is it protected?
- How much revenue does each intellectual property generate annually?
- What are the company’s tangible assets?
- What equipment and machinery does the firm have on hand?
- Does the company have past and current litigation history?
- In the past, if yes, what was the outcome?
- Are there necessary licenses that must be obtained before operation begins?
- What domestic and foreign laws is the company subject to?
- What valid insurance policy does the company have and what objects are covered by this insurance?
- Are there potential legal risks such as antitrust concerns post-merger?
- Where are the company’s financial statements -balance sheet, income, and expenditure statements- from the past several years?
- Where are the company’s tax returns filed for the 3 previous years minimum?
- What business expenses does the company incur periodically?
- The company’s gross profit margin is?
- What is the debt portfolio of the company?
- How liquid is the company?
A lot of technical abilities are needed from the start to the end of the merger and acquisition process no matter how structured and informative your due diligence checklist and report is. Hence, always employ the services of professionals such as lawyers, financial analysts, engineers, etc. to carry on-site assessments. This will produce a genuine valid technical due diligence report.
Information technology due diligence checklist provides answers to every essential information needed during a merger & acquisition. The buy-side and the sell-side both need an independent technology due diligence checklist. Whilst the buy-side needs it to make a thorough report on the company IT capabilities and personnel, storage system, internet security, to give some examples, the sell-side conducts a due diligence checklist to eliminate possible obstacles that can flag a merger and acquisition deal. For the buy-side, technical due diligence is a complete overview and evaluation of the technology, products, organization architecture, assets, and liabilities so that they fully understand what they are getting themselves into. An IT due diligence checklist makes it easy for the business to set out short-term integration targets that will deliver value to the existing and assimilated customer base. Conducting an overview using an IT due diligence checklist is a proactive approach to discovering more ways of creating value along the entire deal lifecycle. With firms growing to become conglomerates and industry giants, an IT due diligence checklist must be made easy to understand, very effective and quicker at sanctioning every proposed merger and acquisition deal.
We bring over two decades of technical due diligence experience to provide an unbiased assessment of your M&A target’s tech stack, software architecture, security, and technical debt to identify and assess risks. Whether you’re on the buy-side, sell-side, or even just an assessment on your company which we often see typically to assess operations, we provide an assessment from our team of experts. Request a technical due diligence assessment today.