Tips for driving more M&A value from technology due diligence to increase EBITDA
Technology due diligence has always been essential to the M&A due diligence process. Most technology diligence focuses on uncovering red flags and avoiding unwanted surprises post-acquisition. Identifying the hidden costs, risks, and weaknesses in current systems and applications is still important and relevant. Forward-thinking PE professionals are partnering with technology firms to help them validate their investment thesis regarding digital transformation as another tool for growth early in the investment cycle.
As Clément Mengue explains to Financier Worldwide, “Companies should assess current portfolio companies’ digital readiness and identify the required capabilities needed by each portfolio company to transform and stay competitive over the long term digitally. Typically, this results in identifying, quantifying, and prioritizing various strategic and operational digital levers that could increase the EBITDA impact of a portfolio company’s business.”….“Today, digital transformation is the latest value creation tool that enables a traditional business, typically a non-technology company, to transform into a data-driven one by leveraging de-risked technologies, such as data analytics, artificial intelligence (AI), and the internet of things (IoT), among others.”
Given today’s opportunities to drive growth through digital business transformation, it is even more critical for PE firms to understand not only technology risks but also growth opportunities during the investment’s lifecycle, both during the acquisition process through technology due diligence and through a technology review process for the holding companies.
PE professionals should have their technology partners assess the target acquisition companies through the lens of both risks and growth perspectives. Some technology findings might be manageable but might hinder the near growth of the company based on the PE strategy to generate value in the short and long term.
The following are key areas to consider.
Technology strategy for growth
Technology alignment with the market
Technology Department-level financials
Technology Executive leadership and staff capabilities
Technology Business process and application architecture review
Technology infrastructure and service operations
Disaster recovery planning
In-flight and planned technology projects and how they are aligned with the company’s technology strategy.
Data management practices
R&D innovation pipeline
Cybersecurity resources, processes, and tools
PE firms should have a digital operating partner. The digital active partner identifies high-impact digital initiatives, plans them with the investment team and portfolio company management, and then drives the execution.
The above-mentioned vital elements are meant as information and require a more profound understanding of the company and the industry. However, if you would like a more detailed overview, do not hesitate to reach out to me at firstname.lastname@example.org.
I have years of experience building Technology and providing Technology Due Diligence as a CTO, and I am available for fruitful discussions.
Fuzzitech expertise and experience in Technology Advisory and Due Diligence can help you successfully discover the truth from the perceived value of technology as a vital part of the transaction. Hence, you have the clarity to know how and where to move forward quickly.