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Ask the Expert: Digital in deals - Where should you focus the IT work?

Read our recent 'Ask The Expert' piece for Insider Magazine. Steve Williams, our head of mergers and acquisitions, follows up his last piece discussing why it’s important to consider technology in the dealmaking process; after all, IT can be the forgotten relative in M&A deals, lost amongst legal and financial wrangling.

We think it’s more important than that, and while we’ve talked about the ‘why’, it’s now time for us to give some insight into the ‘what.’ We set out below the key things we’d recommend considering in your next deal.

2020 saw a slowdown in activity for obvious reasons, but now things are picking up quickly. Trade buyers and private equity are looking for resilient businesses and thinking about long-term performance.

Our M&A offering is one of the fastest growing areas at Waterstons as clients realise the importance of technology in their deal, but we’re still surprised by the number of deals which proceed without much attention being paid to the existing and planned IT landscapes of the businesses involved. We think this needs to change – as a minimum there are some things that are material to any deal.

Every deal is different, but here are our top tips that apply to all:

1. Focus on the future state of the organisation

Buyers will always think not about what the target business is, but what it can and will be; therefore IT advisers need to work with principals to design the core systems and underlying infrastructure for those future operations.

As an example, a PE firm may acquire three £20 million businesses with the intention to drive out synergies, deliver growth and build a £100m business. The IT needs to be designed to start relatively small and scale to that £100m without costly re-implementations.

2. Understand the full systems picture early

Quite often, we’ll find some technology-related information in the information pack at the early part of the deal process. Unfortunately, it’s all too common for this to be focussed on the big-ticket systems and it rarely gives enough detail to make an informed analysis of the technology estate.

So, alongside the obvious things – like the ERP system, finance package, and infrastructure - think about the other key systems. Consider security and regulatory needs, and pay close attention to any bespoke systems, and any which are sub-licensed from a parent company. We often find many tens of these smaller, less well-known systems in use – ones that no-one realises may be critical to the business’s operations.

3. Get the people right

Your IT staff, IT advisers and IT support contracts need to be able to deliver the future state and operate it well. Take the opportunity to review the current team, and don’t overlook existing staff members when recruiting for any new positions. There may be stars waiting to shine!

Equally, don’t underestimate the complexity involved. You may need to bring in external resources, and that’s where a consultancy like Waterstons can be of value, to augment your in-house team.

I was speaking last week with a CIO from a PE-owned firm. He has a clear view about what resources he wants in-house, to ensure control and ownership, and where he wants to partner with Waterstons. We can supply specific skills that he does not need to have ‘on the books’ – network architecture, ISO27001, programme management – and he can run his in-house team to ensure that IT is owned in the business; a great approach that balances in-house skills and flexibility.

4. During the transition

a. Remember you have a business to run

Don’t neglect today’s business and today’s customers. You may need trusted interim staff – whether that’s a CIO, desktop support person, or anywhere in between – to allow you to concentrate on success today whilst preparing for more tomorrow.

Make sure any interim staff integrate well with your in-house people. The cost is small compared with your business failing. We’ve worked with clients to bolster their internal teams with specialist skills, manage integration programmes, and deliver future-state systems in partnership with their own people – ensuring their business-as-usual can be maintained throughout the transition process.

b. Be bold

Don’t worry if you have to write off some obsolete kit or systems – make the case and get on with it. Any deal represents an opportunity to improve; you wouldn’t be buying the business if you didn’t see a future in it. Handle the sensitivity of change carefully, but do take the responsibility.

A real-world example; a warehouse scheduling system written by a person no longer with the business. If it breaks or needs changing, the business’s warehouse will stop working, so it needs to be replaced as a priority, with something that is supportable.

c. Establish the key priorities with business leaders and deliver them

There are always a hundred ‘priorities’. Focus on simple questions like ‘Can we despatch?’ and ‘Can we invoice?’. Identify those areas which simply cannot fail and prioritise them over those that could create temporary issues if they do. Make sure to look across all areas of the business and gain buy-in from key people by understanding their priorities and making time to give them what they need to perform.

If you’d like to know more about how we can help technology drive value in your deals, contact our M&A specialists, or read more on our Mergers & Acquisitions page

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