CIO Magazine: September Issue

Top CIOs Get Deeply Involved in Merger Deals

Leading-edge CIOs don’t just investigate the IT risks in mergers and acquisitions. They also uncover digital opportunities.

CIO Magazine

September Issue

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Beyond the Checklist

A playbook of standard procedures can speed up due diligence and help cover your bases. But every deal has its quirks. You’re trying to get a feel for the IT group, as well as the facts about it, says Steve Phillips, CIO of Avnet, who has been involved in more than 50 mergers and acquisitions in the last decade.

Give yourself a head start by gathering any public information you can find through online searches, chats with key vendors and colleagues in your professional network, and reviews of financial documents. If an auditor finds a material weakness related to IT, the company must file a description with its annual 10-K.

The first round of due diligence paints the landscape of IT at the target company—a list of major hardware, software, data centers and other facilities, plus an overview of the IT budget and major projects underway. Ask for information about systems in the cloud and what is outsourced, says Jan Roehl-Anderson, a principal at Deloitte Consulting. She also likes to see application architecture diagrams and disaster-recovery plans.

Todd Stabenow, director of IT M&A and international systems at Land O’Lakes, makes a point of asking for proof of software licenses and whether there are any disputes going on with IT vendors.

If the deal is big and there’s time, a second round of inquiries may delve further into licenses and other contracts, anything missing or inconsistent from the first round, and perhaps a detailed version of the IT staff org chart.

Don’t forget shadow IT. Interview finance, HR and marketing leaders about their IT systems and projects, which might be unknown to the CIO at the target company, Roehl-Anderson says. Also check in with the real-estate department about remote data centers and other offsite IT facilities, she says.

Cora Carmody, SVP of IT at Jacobs Engineering, sometimes inquires about the compensation structure for the target company’s IT organization. That’s helpful when devising plans to integrate the staff later, she says.

Be careful about who you talk to, and how you talk to them, so you don’t spook future allies, Carmody advises. “One of the first things I learned was tone and tenor,” she says. “You don’t want to lose historical knowledge and brainpower if the thought of being acquired disturbs someone.” Some former CIOs from past acquisitions have stayed on at Jacobs.

Be wary of trying to get too detailed, Phillips says. Due diligence is for “trying to assess whether we can make the transaction make financial sense,” he says. “We don’t want any big surprises from IT, but we’re not trying to lay out an integration plan yet.”

Copyright © 2014 IDG Communications, Inc.

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