Technology due diligence

A critical element to secure transaction value

No sound deal-making without technology due diligence

Having a clear understanding of an organisation’s technological capabilities is key to making informed decisions about future-defining business transactions. Technology due diligence reveals a company's digital maturity and scalability, identifies potential risks and uncovers opportunities for growth. Let's take a closer look at why thorough technology due diligence is critical for a successful transaction.

Looking at technology-driven value creation

In deal-making, it is crucial to identify and secure the factors responsible for creating long-term value. In that regard, a well-planned and thorough integration of data, IT systems and digital capabilities has become vital. Not only for operational success but to maintain a competitive advantage in today's challenging business environment.

Information technology (IT) no longer just plays a supportive role. Nowadays, it involves handling critical business data, developing digital capabilities, fostering innovation, enabling Industry 4.0 and ensuring security, to name but a few elements. In transactions, understanding the technology angle is essential for managing risks and making the most of its capabilities. That's why technology considerations are essential for creating value but also for reducing technology-related risks.

Enabling new business opportunities

Transactions allow organisations to leverage the power of information technology to unlock new business opportunities and further drive strategic ambitions, such as:

Identifying and realising operational efficiency initiatives
exploring new revenue streams and commercial opportunities
tailoring products and services to evolving customer needs
swiftly adapting to changing business landscapes

Reducing technology risk

The rising importance of technology also increases technology-related risks, which can disrupt business operations and erode value. Risks can be reduced significantly through:

a comprehensive assessment of technology assets
cybersecurity measures
an IT governance framework to identify vulnerabilities
establishing robust safeguards.

What does technology due diligence do?

Technology due diligence is a critical process conducted in business transactions, offering stakeholders a deep dive into an organisation’s technological footprint. This comprehensive assessment aims to identify potential risks and uncover opportunities for improvement by evaluating:

Overarching technology strategy and organisation
IT & OT systems
Digital capabilities and platform(s) roadmap
Interoperability and scalability potential
Data management and data security measures

By providing a clear understanding of a target organisation’s technological capabilities, this diligence empowers investors, acquirers, and business owners to make informed decisions, negotiate effectively, and plan seamless post-transaction integrations or carve-outs.

Both buy and sell side benefit

Technology due diligence is an exhaustive assessment conducted by both buyers and sellers in a transaction. Simply stated, it ensures the understanding and mitigating of potential risks for the buyer, while on the seller side, it allows for showcasing the value and robustness of the technology assets and data on offer. A fair and objective judgement benefits both parties.

Identifying risks

In the context of technology due diligence, our focus will be on identifying and assessing potential risks as well as proposing mitigating measures. These risks can harm the deal and its aftermath, causing problems related to system integration, hindrances to growth, knowledge loss, etc.

Domain	Risks
Strategic alignment Review the organisation’s technology strategy, goals, roadmap, historical technology milestones and strategic technology principles.	Misalignment between technology strategy and strategic business objectives. Unclear technology strategy leading to a lack of vision for the IT and business organisation.
Organisation Review technology organisation structure, skills, external vs internal sourcing and identify risks associated with key personnel.	Weaknesses in organisational structure affecting collaboration and decision-making. Inefficient technology governance structures in place.
Processes & procedures Review technology processes and procedures, methodologies and documentation, to identify efficiencies, weaknesses and alignment with industry best practices.	Poor documentation of critical processes. Lack of adherence to industry best practices.
Digital capabilities Review the organisation’s readiness to embrace digital technologies, assessing the current state of technology and the potential for innovation.	Inadequate skills to leverage emerging technologies. Insufficient digital transformation initiative. Technology debt.
Platforms, data & integration Review existing platforms and integration capabilities focusing on scalability, interoperability, and the ability to support business processes.	Legacy systems that are difficult to maintain. Integration challenges with existing systems and third-party solutions.
Infrastructure & cloud Review the reliability, scalability, and security of the technology infrastructure, including an evaluation of cloud services.	Ageing or unreliable hardware infrastructure. Inadequate capacity planning for future growth.
Security Review cybersecurity posture, identifying vulnerabilities, evaluating security policies, tooling, etc.	Inadequate data protection and privacy practices. Lack of a comprehensive security strategy and incident response plan.
IT sourcing & financials Review past and planned technology spending, benchmark against industry norms, assess outsourcing and key suppliers, to evaluate dependencies.	Overreliance on a single supplier or vendor lock-in. Inaccurate budgeting and forecasting. Unexpected technology-related costs or liabilities.

Our different approaches

PwC tailors technology assessments to your unique transaction dynamics and organisational needs by resorting to three distinct approaches.

Red-flag analysis

Red-flag analysis swiftly identifies and focuses on critical risks that could represent a deal-breaker.

Tailored due diligence

Tailored due diligence customises the investigative approach to address specific concerns or objectives.

Full-scope due diligence

Full-scope due diligence conducts a thorough examination of all relevant aspects to provide a comprehensive understanding of an IT organisation.

Capturing value after the deal

Following the completion of a transaction, PwC can also provide valuable assistance in the integration and/or carve-out of the target organisation's IT, ensuring a smooth transition and optimised operational effectiveness.

Carve-out

Carve-out involves the strategic separation of a business unit from its parent company, requiring a careful disentanglement of shared resources and the establishment of independent IT systems.

Post-merger integration

Post-Merger Integration (PMI), on the other hand, focuses on harmonising the IT capabilities of companies that have merged, combining systems, processes, and cultures to create a unified and efficient organisation.

How can we assist you?

The finalisation of a transaction is often the starting point of a value journey. Whether in a PMI or a carve-out scenario, it is impossible to fully capture that value without considering the technological dimensions.

Business and technology are intertwined. To realise strategic objectives and successful transformations, they need to be considered in relation to each other. Therefore, we must recognise all technological aspects that will be impacted by the transaction.

Identify all layers

We start by identifying all layers within the technology landscape, spanning infrastructure and applications, and including both back-end and front-end elements.

Organisational implications

Moving forward, we delve into the organisational implications, stemming from the integration or separation, particularly as they pertain to IT. This entails:

Assess complexity levels

Lastly, we assess the complexity levels inherent to each IT topic and seek to identify all relevant IT costs and potential synergies associated with the operation.

If you want to know more about technology due diligence or if you think your client needs support in this respect, please don’t hesitate to contact us!

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Contact us

Xavier Verhaeghe

Partner, Technology Consulting, PwC Belgium

Tel: +32 495 59 08 40

Maxime Dolphin

Senior Manager, PwC Belgium

Tel: +32 470 86 28 92

Christophe Bahim

Manager, PwC Belgium

Tel: +32 474 57 05 69

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