Writing for Pitchbook, Stan Mork (RSM McGladrey) acknowledges research by Gartner and others confirming that midsize companies have halted spending on IT upgrades and enhancements. Mork offers this very reasonable description of what this means to the value of private companies:
“Outdated, undersized, non-standard or custom-developed platforms point to cost, data integrity, regulatory and security risks. Buyers may find that significant enhancements to technical and business application infrastructure are required after the acquisition. Critical investments in a company’s web presence and customer relationship management system may also be needed.”
Given the vulnerable state of IT in many organizations, buyers should consider the following questions:
- Have the systems kept pace with changing regulatory requirements?
- Will a sizable investment need to be made after the acquisition?
- Is the company up to date and compliant with hardware and software licensing?
- Are staffing levels and expertise sufficient to maintain post-transaction stability? To support post-transaction objectives?
- Do internal or industry-standard benchmarks reveal areas of weakness?
While security, integrity and scalability of the IT infrastructure are more difficult to benchmark than other areas of due diligence, they represent a rapidly growing threat. Including IT in the due diligence process not only protects your investment dollars but also optimizes investment performance post-transaction.
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