This article is written by Aditya Kasiraman, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.com.

Introduction

A merger or acquisition presents a number of challenges in the workplace. Employees will be concerned about job retention and restructuring, and greater responsibility is placed on senior management to ensure that mergers or acquisitions are carried out efficiently for uninterrupted business operations as well as regulatory and shareholder interests.

In all cases, the concerns of the IT department may be overlooked. A study by McKinsey found that although up to 60% of M&A programs aimed at capturing partnerships between two companies are closely related to IT, many IT issues are completely ignored during due diligence and planning stages of a merger or acquisition.

However, IT planning and management are essential for a successful & smooth transformation of a company’s restructuring process. Lack of IT planning can lead to important issues, and in order to make the most of mergers and acquisitions, technical strengths and weaknesses on both sides must be taken into consideration.

Risk and disruption can be significantly reduced through research, planning, and systematic communication, and IT plays a key role in these activities.

Contracts

The IT team must collect all contracts, agreements, and commitments entered into with external vendors and service providers to establish stages of transfer, delivery and termination. Limiting exposure to all parties to change is important, such as maintaining good relationships with vendors. A full understanding of the company’s commitment to foreign businesses is an important first step in this process.

The IT department should also review any internal contracts or commitments made to employees in the technology department, in order to incorporate those commitments into the transformation process and maintain as transparent a communication as possible.

Software Licensing

It is also important to address software licensing as part of the relevant process. When a company is acquired by another company, the transfer of licenses may not be direct. This is done on a case-by-case basis depending on whether you are working with a private company or with a carve-out of a larger company. It is important to understand the ownership and liability of all licenses in order to remain compliant, and non-compliance can cost fees and penalties as well as damage ongoing relationships with merchants and third parties.

Network

The network itself plays a major role in planning the transformation of the IT department. The IT management team must decide whether the new business that will emerge after the M&A event will remain on different networks, if these networks merge, or whether a completely new network will be built. Each of these scenarios will have its own features that should be considered to make an effective, less risky, less disruptive transformation plan.

Conveyor Contracts and Agreements

The status of current conveyor contracts and agreements, and whether they can be transferred or not, is another factor to consider. If not, new contracts must be signed and new circuits ordered, as lead time to order new circuits may cause delays in full integration. The course of action should be determined as soon as possible in order to minimize any remaining time or disruption that may result from ordering new circuits.

Texting

Texting is incredibly important for today’s collaborative staff. A recent study by McKinsey found that using social technology, including corporate messaging, could improve employee productivity by 20-25%.

The IT team has to decide which messaging service is currently being used by each team in the M&A event. Do companies use local messaging, or are the messages available in the cloud, or elsewhere? Will the change lead to a transfer to another level, or the adoption of a third-party messaging service? Once the preferred route has been determined, messaging systems should be included in the overall integration plan. Failure to translate smoothly into new (or shared) messaging services may result in disruption of employee communications and adversely affect customer service.

Other Tools

The IT department should pay attention to requirements that include email retention and postal services to protect those business services and reduce disruption of essential functions. The IT team also usually manages telephony, VoIP, and A / V systems, so logging and monitoring system integration is important in the management of workflow and staff productivity.

Domain

It is important to decide how the new company or companies will manage the domains, as the primary domain is the company’s face to the world. If an M&A event is causing a stir, it can lead to uncertainty for employees and customers alike. A cohesive message, delivered with a well-planned domain conversion if needed, will help maintain communication with internal and external customers and reduce anxiety during the transition.

The IT department should work with senior management to find the right domain approach. Will a new domain be needed? Will the two companies be merged into one domain, or will they end up existing differently? The complexity of resolving domain issues depends largely on the degree of integration each business had with the previous domain and should be resolved and a strategy developed as soon as possible.

Control

Working with law enforcement agencies and compliance with all parties, the IT department must determine whether any government or industry laws need to be considered during the transition period. The team should work together to decide how management issues will be handled going forward.

This is also a good time to address the Transformation Services Agreement (TSA), and to decide whether any of the set terms or conditions should be included in the integration plans.

Infrastructure Management

Finally, the IT department should look at how the infrastructure is currently managed by both parties, and how it can be integrated or exported to provide seamless change for all organizations. Consideration includes whether the infrastructure is a specialty area for the company or if the infrastructure is outsourced. Detailed discussion should include whether it makes sense to work with the mind to keep the infrastructure inside, or to remove a third party with infrastructure knowledge from IT support services is the best option. Once the study is completed, planning can begin.

In the event of a merger or acquisition, open and transparent communication is key, including maintaining lines of communication with employees and customers. Proper planning and diligence that includes the concerns and activities of the IT department can go a long way in preventing business disruption and confusion. Creating a checklist and managing it with the right communication on the road can provide great benefits to what can be a time of distraction for employees, customers, vendors, and related organizations.

Due Diligence Checklist for Information Technology

Completing IT research provides significant insight into key company activities and projects including a detailed description of their core policies, practices, resources and potential security threats. In the digital age, collecting this information is essential to value creation and establishing cultural interactions. It is also important to have a proper checklist when selling a business. In this way one can be sure that the most important IT projects fit into the acquisition plans.

IT Management

• Details of any current IT / planned programs / important projects.
• Summary of key IT resources (hardware / software / people).
• Software purchase policies and procedures.
• Summary of all visual software used by the target.
• Policies and practices relating to the purchase and maintenance of IT hardware.
• Summary of targeted computer hardware, including visual area.
• Diagram of construction technologies including servers, storage devices, operating systems and data bank.
• Description of communication systems and specific hardware configurations.
• Summary of any vendor support or other support services provided.
• Summary of annual costs associated with repairing IT hardware, including hardware upgrades and replacements.
• Physical contracts related to software and IT services.
• Summary of services provided by all external IT contractors / consultants.
• The potential for growth in the current IT environment.
• Summary of the target’s acquired technology and the role of IT expertise in strategic planning.
• Description of target’s help desk assistance.
• Description of the level of automation with the web or internet-related applications.

IT Security

• A detailed summary of important security agreements.
• Definition of backups and disaster recovery policies and procedures.
• Detailed description of data privacy policies and procedures.
• Summary of all personal and / or sensitive information.
• Guided policies and procedures relating to data storage and data encryption.
• Summary of any issues, including loss of confidential information, inappropriate or harmful content, etc.
• The results of the pressure test analysis, including the resolution of any identified issues.
• Details about monitoring / testing measures to ensure that technical protection works are as expected.
• Summary of any installed security issues.
• Summary of any anti-virus and anti-malware protection.
• Policies and procedures used by target mobile device security management.
• Description of any cyber attack / intrusion.

What Tasks are included in the Information Technology M&A Integration Checklist?

Describe Day 1 of Targeted Activity: This section enables employees to better define Day 1 IT policies, roles, systems and functions. This is a comprehensive checklist to prepare for successful integration into all IT operations.

• Review all Targets / Target Performance Models (TPMs) for day assumptions / toolkits.
• Identify specified IT procedures in scope for the transaction according to the IT charter.
• Define Day 1 IT organization design, roles, and responsibilities.
• Explain Day 1 procedures and policies.
• Specify Day 1 IT facilities / places.
• Collect Day 1 of the TPM systems inventory, ensuring that IT General, IT-Specific systems / tools, and all systems from workstream / function TPMs are included.
• Make authenticator troubleshooting to ensure that the dated TPM and installation systems are compatible and functional, particularly to Network /Telephone Consideration Equipment depending on the Target Operating Model. 

Address Roadmap, Personnel Recruitment and Budgeting: Successful integration of IT operations require consideration of budget structures, determining staff models and creating an appropriate roadmap of initial responsibilities after closure. This section should be done with specific IT functions but provide a standard template.

• Decide whether the IT budget will be centralized or scattered between groups.
• If the IT budget is dispersed, prepare and distribute the protocol and timeframe for submitting budget line items, and carefully review the completion of submissions.
• Update the whole IT roadmap, undo all unimportant projects to allow for acquisition focus.
• Consistent with integration leadership, determine the IT System Employment Model considering All TPM requirements, scope, and time requirements.
• Compile the budget for the entire IT program in accordance with the guidelines established in integration leadership, adding conflicting conditions related to integration uncertainty, i.e. 15-20% initially, reducing repetition wherever possible.

IT Organization Design, Procedures, and Policies: Create any new IT jobs and boarding processes as well as any new or changed policies, performance metrics or training needs. This phase will require extensive assistance from staff to ensure successful implementation.

• Draft any definitions of new jobs and get approval from the HR.
• Verify all IT onboarding requirements connected to the program-wide onboarding system.
• Fill spaces if needed for new / modified IT processes, including controls.
• Document new / modified IT policies.
• Identify and address IT requirements for Day 1.
• Address Departmental Performance Measurements and Benefits.

Consider the Requirements for IT Centers: This section ensures that all required facilities are built and ready for Day 1 implementation, this includes office space, inventory and technology.

• Ensure resource planning compliant with IT organization design including chairs, conference rooms, and audit areas.
• Ensure the provision of full-day residential system services, including network, telephone, bandwidth, storage, navigation, etc.

Establish Data Management & Perform Data Operations: It is important among any type of M&A transaction that important data is organized, delivered to the manager and stored securely. This section ensures that data activity is calculated during the integration process.

• Using system utilities, configure compatible data calculation display: system owner, data owner, data type, system merchant program, compatible data owner, daily requirement data, and data delivery method / data provision.
• See if any items in the data list require additional management, e.g. identify RACI for data cleaning, mapping, migration, testing and archiving.

Address Information Security: It is important to consider and deal with security concerns and agreements prior to Day 1. Follow this checklist to make sure your important tasks are not forgotten.

• Review the Diligent Information Security Policy. 
• Based on the Target Performance Model, check for any security concerns that may arise and need to be addressed.
• Develop and implement a program for addressing any identified security concerns.

Address Employee Enablement: This section of the checklist provides important functions in empowering employees within an IT department or profession. This includes staff roles, system access requirements, employee devices, and departmental policies.

• Review all performance models for personnel roles, responsibilities, and locations.
• Determine system access requirements.
• Compliant with the HR, upgrade Employee Master Data / Personnel ID Setup Systems and email addresses.
• Decide whether employees will get new devices, consider security image, licensing, and continuing desk help.
• Determine Legacy Email Protocol, Hard Drive Migration, and Legal Consultation.
• Develop integrated IT policies and procedures, including the help desk in line with transformation management, communication, HR, delivery communication and re-training empowerment of IT staff.

Address Hardware, Software, and Licensing: Determining hardware, software requirements and list of programs and licensing agreements during the integration process creates an easy post-closure process.

• Determine hardware and software requirements as indicated in the TPMs and inventory system.
• Check additional hardware and software requirements for IT / Architecture / Security Information Infrastructure.
• Examine various license agreements from Counterparty to determine shipping on availability.
• Check available license agreements to detect scope.
• Obtain additional licenses as required, advising on business development, financial and cost management issues.

Address Development Requirements and Use, Address Retirements: Once the systems, tools and licenses have been defined, the professionals must ensure that all the requirements are met in order to be used effectively such as preparing for the construction of technology and finding the right structures. 

It is also important to explore the IT systems of the target company and the collection of assets as a way to improve the IT integration system and measure compliance. You will also need to develop a retirement plan for each plan used by the target company that cannot be transferred.

• Determine Development Requirements and Use as indicated in the TPMs and the system list.
• Combine Functional Design / Development Objectives / RICEFs from Stakeholders, ensuring that design is provided for each such item as indicated in the TPMs.
• Prepare technical designs For everything.
• Build / Test / Download all things, verify Day 1 Test includes all data and advanced locations Before Day 1 Go-Live.
• Include Counterparty System Inventory.
• Rate the Counterparty and Acquirer System Inventory for retirement systems according to Day 1 TPM.
• Upgrade the data storage and retirement system to the whole retirement plan.
• After receiving login to data owner, archive system data.
• Once the data is archived, obtain the sign-in information from the last retirement system owner.
• Disable the system and terminate licenses and support.

Conclusion

During the M&A transaction, IT is under a lot of pressure to deliver and many things have the potential to go awry. The deals of mergers, acquisitions and divestiture are complex, and dealing with them successfully is part art and part science. A well-structured approach to dealing with various aspects of IT integration or asset segregation can provide practical insight and help to effectively identify risks and issues that could prevent an organization from achieving its short-term and long-term goals as part of a transaction. The checklist listed here may prove to be one of the most important tools for assisting effective and efficient IT participation in the merger, acquisition or division of assets. Following this approach will not guarantee the expected benefits, as there is no guarantee. However, proper planning and implementation of pre- and post-Day 1 activities related to IT integration and asset allocation can make the process easier and more efficient, and can increase the chances of reaping the expected benefits.

References

1. https://maintech.com/checklist-for-successful-mergers-and-acquisitions/
2. https://dealroom.net/faq/due-diligence-checklist-template
3. https://dealroom.net/template/information-technology-integration-checklist
4. https://onlinelibrary.wiley.com/doi/pdf/10.1002/9781118692028.app2

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