Tangible assets get most of the attention when a company is in the midst of a merger or acquisition. That's natural, but one of the keys to postmerger success is the integration of IT. Unfortunately, successful IT integration is much harder if IT decision-makers aren't involved early on and throughout the entire transaction process.
At the outset of a proposed transaction, IT decision-makers should be asked to consider the postclosing operational needs of the business being sold to ensure continued operations. If such analyses aren't done or are done late in the process (right before closing isn't unusual), you could end up learning too late that key technologies can't be transferred or that the acquired company uses processes that provide inadequate value. But an early analysis could also identify opportunities, such as the ability to replace portions of the backbone with better or less-expensive technology or to outsource some functions.
When IT decision-makers are left out of the loop in the early stages, critical technology issues are often given only a cursory glance by the business and legal teams. In effect, no real thought is given early on to how to keep the business running on the day after closing. When IT's involvement is put off too long, there's often insufficient time left to avoid operational glitches that become a barrier to achieving the value the parties expected when they entered into the transaction in the first place.
Effective use of IT decision-makers in planning for an effective post-closing transition and integration involves at least three phases:
1. IT is involved in preliminary technology planning and analysis as part of the deal's due diligence.
2. IT advises on how to best structure a transition services agreement. This includes knowing which services can be offered to the business postclosing and how those services are affected by any existing outsourcing agreements with third parties.
3. IT plans post-transition integration, including whether existing outsourcing relationships will be extended or new ones created.
To avoid major snags, IT needs to examine all third-party relationships. IT needs to know, for example, whether the acquired company has any enterprise software license agreements. If it does, then there could well be related support, maintenance, and IT and business outsourcing agreements. By involving IT early on, these sorts of things can be turned over to the legal team, and potential problems can be uncovered while there's still time to find solutions. The IT team can also help identify all of the assets, hardware or software the buyer will need to use or access and that the seller will need to provide, license or otherwise procure. That sort of knowledge will leave the parties with a better estimate of the cost of smoothly meeting the parties' post-closing needs and goals.
The degree to which the parties use their respective IT decision-makers to help them focus on these issues early on in a merger and acquisition deal is often a key factor in the success of the transaction. The economic details are important, but giving consideration to the business's technology needs as a part of the functional aspects of the business will save time and money after the sale is complete.
Christopher C. Cain and Karl A. Hochkammer are partners at the law firm of Foley & Lardner LLP, practicing in the firm's Information Technology & Outsourcing and Transactional & Securities Practices. They specialize in counseling clients on the legal, technical and transactional issues arising in technology transactions, including IT outsourcing and business process outsourcing.