During the due diligence stage of an acquisition, it is important for the acquirer to thoroughly analyze both the qualitative and quantitative data of the potential acquisition target. This evaluation can help reveal whether the transaction will succeed or fail, and one capital-intensive area to focus on is IT and fixed assets. The acquirer can use various methodologies to understand the target company’s IT and fixed assets, including inquiry, inspection of documents, and observation of equipment.
If you’re interested in ensuring you have all the information you need before acquiring another company, take a moment to learn more about how to evaluate a target company’s IT and fixed assets.
IT and Fixed Asset Information Acquirers Should Request
When an acquirer begins evaluating a company’s IT and fixed assets, there are a few pieces of information they’ll want to request from the acquisition target. These pieces of information include:
- Inventory list of computer hardware
- Current listing of fixed assets, including depreciable basis
- IT structure
- Leased or rented hardware items
- Major IT initiatives recently completed or planned
- IT-related agreements, such as IT consultants, service level agreements, etc.
- Software listing and terms
With the requested information, an acquirer can assess the technological state of the company and identify areas of concern to further inquire about if necessary. This information also allows them to identify key areas that could be a heavy capital expenditure to acquire the target company.
How to Evaluate Key IT and Fixed Asset Information
When evaluating the above IT and fixed asset documents, there are some key areas of focus or concern acquirers typically inspect, such as the target company’s key systems, technologies, and current fixed assets. By identifying and evaluating these areas, the acquirer can more quickly understand the capital outlay required to bring the acquisition into the same systems they prefer.
During the evaluation stage, the acquirer should also look for software contracts used by the acquisition company that the acquirer will not need. If the acquirer finds any software contracts, they’ll need to decide whether these contracts can be canceled early, bought out, or be a non-necessary recurring cost. If these contracts cannot be canceled, do they stay with the seller as their obligation? All of these considerations must be sorted out early on during due diligence.
The Questions to Ask When Evaluating a Target Company’s IT Processes
During the due diligence inspection of IT matters, the acquirer will have an opportunity to gain an understanding of the company’s various IT processes through inquiry and a “walkthrough” of each process. Some questions to ask when evaluating a target company’s IT processes include:
- Who is responsible for IT oversight?
- How is cyber security handled?
- Is there a dedicated help desk?
- How are software renewals handled?
- Is there a requisition process for new software or fixed assets?
All of these questions can be addressed and easily understood by a walkthrough with the IT team, staff member, or contractor who handles the IT of the acquisition company.
How to Make IT and Fixed Asset Evaluation As Useful as Possible
When performing due diligence over an acquisition target’s IT and fixed assets, you can keep the process focused by identifying key areas of importance that match your acquisition goals. As areas of concern are identified, quickly documenting, sharing, and in some cases, requesting supplemental information allows for the leadership of the acquirer to make informed decisions. For example, a target company can use its identified concerns to decide whether to continue the transaction, stop the transaction, or change the terms of the deal to accommodate the identified concerns. The key here is having accurate information timely!
Choose Thinc Strategy for IT and Fixed Asset Evaluation Assistance
If you’re engaged in a potential merger and looking for assistance with IT and fixed asset evaluation, Thinc Strategy’s certified merger and acquisition advisors can help. With our merger and acquisition advisory services in your corner, we can assist with every step of the acquisition process. Whether you need help evaluating a target company’s fixed assets or are just starting to create your acquisition goals, our team is ready to provide highly-personalized, expert service to you.