Growing by acquisition is one way to increase your revenue, but it is not an easy endeavor. Additionally, every acquisition is different. There is no cookie cutter approach to integrating companies.
M&A teams frequently place significant emphasis on legal and financial diligence but may overlook or underestimate the importance of thoroughly understanding, from a technical and operational perspective, the investment they are making.
As a private equity firm, investment bank, or acquiring company, it is essential to hire the right team that can effectively perform technical, operational and product due diligence in order to mitigate the risk of investment or acquisition. T Advisors is equipped to prepare companies before considering a merger or sale.
People
• Is the appropriate leadership and technical team in place.
• The efficiency of the company's operations.
• Whether top talent can take time off without disruption to the company.
• Compensation levels of key employees.
• The extent to which employees wear multiple hats.
• Whether employees are overwhelmed or underworked.
Process
• Whether the company has well-documented technical tribal knowledge?
• The efficiency of the company's operations.
• Are they adaptable and/or compatible for post M&A integration.
• Whether the company manages by numbers or operational metrics.
• The level of visibility and accountability across the organization.
• The existence and effectiveness of information security policies.
Technology
• The effectiveness of the company's technology usage.
• The scalability of the company's technology for expected growth levels.
• The existence and value of any intellectual property.
• Redundancy of the company's technology with the acquirer.
• The availability and geographical redundancy of the company's systems.
• Can their technology implementation & operation run with lower cost?
Why is performing technical due diligence important?
Identifying Technical Risks:Technical due diligence helps identify any potential technical risks associated with the target company's products, services, technology, and infrastructure. This includes assessing the scalability, reliability, and security of the technology, as well as compliance with industry regulations.
Assessing The Target Company's Capabilities:Technical due diligence can provide insight into the target company's capabilities, including their technology stack, development processes, and intellectual property. This information can be used to identify potential synergies and inform integration planning.
Evaluating The Target Company:Technical due diligence can also be used to evaluate the target company. For example, assessing the target company's technology, development processes, and intellectual property can provide insight into the company's future growth potential and revenue streams.
Identifying Areas For Improvement:Technical due diligence can also identify areas for improvement within the target company, such as outdated technology or processes, which can be addressed before or after the acquisition.
Making Informed Decisions: Technical due diligence helps the acquiring company make informed decisions about the acquisition by providing a comprehensive understanding of the target company's technology and operations.
Why should companies focus more on operations, technology and product areas during a due diligence?
A company can benefit from technical and operational due diligence when preparing for M&A by identifying potential issues or risks associated with the target company's technology, operations, and infrastructure. This can include evaluating the target company's product or service offerings, assessing the scalability and reliability of their technology, and examining their compliance with industry regulations.By identifying these issues early on, a company can negotiate more favorable terms or even walk away from the deal if the risks are deemed too great. Additionally, technical and operational due diligence can also help the acquiring company understand the target company's capabilities and potential synergies, which can inform the integration planning process and help ensure a smooth transition post-acquisition.
Why is performing operational due diligence important?
Identifying Operational Risks:Operational due diligence helps identify any potential operational risks associated with the target company, such as inefficiencies, compliance issues, or financial mismanagement. This can include evaluating the target company's financial performance, organizational structure, and business processes.
Assessing The Target Company's Operations:Operational due diligence can provide insight into the target company's operations, including their systems, infrastructure and processes. This information can be used to identify potential synergies and inform integration planning.
Evaluating The Target Company's Management:Operational due diligence can also be used to evaluate the target company's management team, including their experience, leadership skills, and track record. This can help the acquiring company determine if the management team is a good fit for the company post-acquisition.
Identifying Areas For Improvement:Operational due diligence can also identify areas for improvement within the target company, such as inefficiencies or compliance issues, which can be addressed before or after the acquisition.
Making Informed Decisions:Operational due diligence helps the acquiring company make informed decisions about the acquisition by providing a comprehensive understanding of the target company's operations and management.