As a company that has completed an acquisition itself (NCC Group has acquired the intellectual property management business of Iron Mountain) in the last twelve months, we have recently been at the forefront of the huge amount of preparation required for an acquisition, including commercial, financial, legal and technology review – as well as critical integration phases.
According to data from Refinitiv, the total value of global M&A deals announced in 2021 was $5.8 trillion, surpassing the annual total of $3.59 trillion in 2020. finance, industry and utilities continued to lead the way and offset the majority of this activity.
The fact is, your organization may be involved in an acquisition or divestiture at some point, either as an acquirer or as a target.
The importance of technological due diligence
Standard due diligence in mergers and acquisitions has historically focused primarily on the legal, business and financial aspects of a target company, but in recent years an in-depth assessment of technology and intellectual property assets has also become an important part. of the whiteboard.
As Mayer Brown explains, “Technology is often a key asset and driver of value – in some cases acquiring the technology is the primary reason for the deal in the first place. Failure to conduct a Proper technology due diligence can leave a buyer prone to overpricing a target.
To ensure that these key technology assets remain valuable and to maintain continuity and access during and after a transaction, rigorous research, analysis and planning are essential to understanding any real technology developed by a company and the supply chain. procurement, as well as critical software and systems used to support the business and its day-to-day operations.
Understanding the control, ownership, and legal contracts surrounding critical software applications and systems is critical to ensuring that everything purchased as part of the transaction will be accessible, available, and usable upon completion.
Here we focus on the importance of software resiliency and how it plays a key role in the acquisition process to help ensure business continuity post-acquisition.
How can software resilience be leveraged in the M&A process?
It’s critical that buyers focus on effective onboarding planning and assessment early in the transaction, not start thinking about it as the ink dries on the purchase contract.
Here are some of the situations where software resiliency can be incorporated as a best practice.
- Protection of intellectual property (IP)
When you acquire a business, you acquire it in a ready-to-use format. But you also want to make sure that you acquire the intellectual property that can be part of the unique value proposition that comes with this business.
Considering how you can protect this intellectual property and ensure it is intact is a must in any deal. Technology development for intellectual property in physical or digital form should have an audit trail that is time stamped and maintained independently by a third party so that it can serve as the master file of technology assets that have been reviewed and can provide comfort additional to the buyer, the investor or even the insurer.
This assures interested parties that the intellectual property included in the agreement is complete, works as promised, and is securely protected by a neutral third party.
Additionally, if there are key people whose knowledge is critical to the valuable IP in the target, buyers should also consider independent verification services that verify, capture and document how that IP is deployed in order to not having a single point of knowledge.
- Business systems integration
Another example of the effectiveness of software resiliency strategies relates to the actual integration of two companies and can play a valuable role in ensuring that business-critical systems remain operational and also migrate successfully.
Based on several studies, the Harvard Business Review reports that the failure rate of mergers and acquisitions is between 70% and 90%. The article concludes that companies that successfully manage M&A activity work hard for effective integration and invest in the integration of the two companies. PwC’s report on success factors in post-merger integration explains: “Decision makers who manage a rapid integration benefit from the positive effects of a merger much sooner, allowing them to quickly resume the management of day-to-day business. .
In the previous point, an acquiring company must understand which of the target company’s systems are essential and ensure that they are functioning properly to successfully serve customers after the transaction. This can be an afterthought in M&A transition plans, but can have a profound impact on revenue if customers start to leave.
Depending on the structure of the acquisition and the seller’s perspective, the data as well as the systems may need to be ported in a configurable format to allow the buyer to continue to operate in the normal and usual course of business.
The acquired company may rely on certain technologies that it licenses to a third party, which the acquiring company may not already have. If during the due diligence process you identify third-party application dependencies, it would make sense to enter into discussions with those software vendors and put safeguards in place to protect the future accessibility and availability of that software. software, technology or asset.
If your organization is involved in M&A activity, the software resiliency considerations above provide a useful guide to ensuring business continuity during the acquisition and beyond.