Understanding and Managing IT Risks, Costs and Opportunities during M&A Part 3: IT Opportunity Valuation

When you have performed a risk assessment and established a view of the cost components to acquire, run and manage an organisation. It will then be key to identify the areas of opportunity to increase the value of the acquisition by uncovering and unlocking additional value through exploiting the IT assets more smartly.

Part 3: IT Opportunity Valuation

IT can potentially provide additional value to the acquisition through new capabilities for the acquiring group, intellectual property that can be exploited, or skilled and experienced IT staff who can provide extra benefit to your wider business.

How do you understand and unlock additional potential worth from your new IT people, processes, and technology?


People: Talent, Expertise and Experience

Finding good IT staff is always challenging, particularly in the current tight jobs market.  When acquiring a new organisation ensure you review the key IT personnel to not only guarantee you retain the best staff, but also to spot those who can add additional value to your group portfolio.  Look across three dimensions:

  • Talent: You will be looking for people who can make a significant difference across all IT disciplines from leadership through to coding. However, the most valuable areas of talent are those that have the largest impact, such as leadership, strategic direction, operational management, and relationship management.  Look for individuals who are determined, focused, communicate well, and have a track record of delivery.
  • Expertise: With a highly technical discipline such as IT, having access to experts in cutting edge technologies can give your organisation first mover advantage. Particularly sought-after skills currently are around digital and mobile development, along with cyber security expertise.  Explore how these technical skills in the acquired organisation can be used across your whole portfolio of companies.
  • Experience: As well as leading edge technology skills, deeper knowledge of current and legacy systems that allow the business to operate at low risk and cost is essential. Experienced IT professionals, with the scars to prove it, can be invaluable to ensure major transformation programmes succeed on time and budget with no embarrassing outages or data leaks.  This experience is extremely beneficial across your whole M&A group as you strive to unlock maximum value from your portfolio of companies.

Top Tip: Conduct a detailed skills and experience assessment of all senior IT staff as soon as possible to find key employees and retain their services, as they will be unsettled by the (normally) secretive M&A process.


Process:  Productivity and Economies of Scale

The processes and procedures of the acquired organisation can sometimes offer potential wider advantage through transferable optimised processes or by offering economies of scale across your portfolio:

  1. Process Optimisation: Most companies devolve their core processes and procedures over time, becoming less effective as additional tasks and workarounds accrete to slow down and reduce clarity of purpose. However, some companies will have invested heavily in lean/Six Sigma process mapping and modelling to ensure their ways of working are optimised to minimise resource and errors and maximise throughput.  Many of these processes can be adapted to other businesses so look for reusable optimised processes to roll out to wider companies.
  2. Economies of Scale: Many front- and back-office IT functions (help desk, Security Operations Centre, network, infrastructure & vendor management, etc.) can be scaled up to work across multiple organisations. Assess whether the acquired organisation can offer this scaling to provide benefits to other group companies, or whether they can fit into a wider group capability to increase effectiveness.  Additional revenue can be generated by cross charging these services (both inside your group and to the wider marketplace).

Top Tip: Look for the existence of up-to-date process maps along with an active process improvement capability to identify where additional process value might be found.


Technology: IPR and Reuse

Most companies have invested in bespoke development or customisation of systems to help achieve market advantage.  Some of this unique capability could potentially be licensed or reused to generate additional value:

  1. Intellectual Property: If the bespoke development is owned by the company, then carry out market research to value the code or system and determine whether it is worth defining and protecting the associated intellectual property rights. Identify what resale or licensing opportunities exist.  This can either be capitalised as goodwill or actively sold to increase revenue.
  2. Reuse: Most companies have very similar requirements for supporting IT systems. Compare the capabilities of the IT systems owned by the acquired organisation to see if they can be reused by other group companies at lower cost than their existing equivalent systems.  If so, additional revenue can be generated by cross charging these IT services.

Top Tip: Ensure the organisation owns the IPR by careful examination of supplier contracts and agreements, and also the individual staff contracts for key personnel involved in its development, to ensure organisation ownership and rights is clear.

So, in summary, there can be significant additional value to be gained from the IT assets of any acquisition. Contact us for more information on how we can support your merger or acquisition due diligence. We hope this three-part discussion blog helps you with understanding and managing IT Risks, Costs and Opportunities during M&A. Follow our blog to stay updated!


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Oliver CookUnderstanding and Managing IT Risks, Costs and Opportunities during M&A Part 3: IT Opportunity Valuation