Don't neglect IT concerns during a merger or acquisition
By Christopher C. Cain Foley & Lardner
In mergers and acquisitions, buyers and sellers focus on the tangible assets of the acquired business, and usually neglect to fully consider IT in the functional success of the business after the deal closes. To ensure the IT aspects of a deal are properly handled, internal IT decision makers should be involved early on and throughout the entire transaction process.
Involving key IT decision makers in a deal from the start helps prevent the buyer and seller from overlooking the transaction’s impact on the operational “backbone” of the acquired business after the deal closes. Paying close attention to how the business will operate the day after the transaction closes, from the very beginning of the deal, maximizes the likelihood the business sale will be a success.
This analysis affords a chance to identify opportunities, such as the ability to replace portions of the backbone with better or less expensive IT solutions or to outsource key functions that were previously handled in-house. Effective use of IT decision makers in planning the post-closing transition and integration involves at least three phases:
(1) Preliminary technology planning and analysis as part of the deal’s due diligence;
(2) Advising on how to best structure a transition services agreement that includes understanding what services can be offered to the business post-closing and how those services are impacted by the seller’s agreements with third parties who may provide some of the services such as telecommunications and utilities; and
(3) Helping buyer and seller figure out how and when the buyer will eventually move from the transition services to post-transition integration, and to what extent the seller needs to leverage its existing outsourcing relationships or create new ones.
Transactions sometimes hit major snags over the failure to inquire about third party services provided to the seller’s business operations as a whole. Examples of these types of services include enterprise software license agreements as well as the related support, maintenance and IT and business outsourcing agreements.
The parties should involve their IT decision makers to help plan for, and work with, the legal team to document the agreements necessary for a smooth transition. In addition, these experts can help identify all of the assets, hardware or software the seller will need to provide, license or otherwise procure, and provide an estimate of the associated expenses to smoothly meet the parties’ post-closing needs and goals.
If IT decision makers are not involved in the transaction, these critical technology issues are often given a cursory glance and do not create a plan for how to keep the business running on the day after closing.
This delay leaves the IT department to try addressing these issues when it is too late to plan proactively. Not surprisingly, this can lead to operational glitches preventing the parties from achieving a successful transaction.
Economic details are important, but having IT consider the business’ technology needs as a part of the functional aspects of the business saves time and money after the sale.
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Christopher C. Cain is a partner at Foley & Lardner LLP in the firm's Transactional & Securities; Commercial Transactions & Business Counseling; and Information Technology & Outsourcing practices.
