IT considerations are not given adequate attention in the due diligence prior to mergers and acquisitions, according to research from Ernst & Young.
As a result, said E&Y, deals can lead to problems further down the line. E&Y questioned 220 senior corporate and private equity executives across Europe and found that only half the respondents conducted separate pre-deal IT diligence for their last transaction.
In addition only 21 percent of corporate and 11 percent PE respondents included technology-related considerations into their transaction negotiations.
In the survey, 47 percent said that in retrospect more detailed IT due diligence could have prevented “value erosion” in past deals. E&Y said IT can “be a key vehicle for growth and value creation if leveraged effectively in transactions”.
Michel Driessen, partner in the operational transaction services practice at E&Y, said: “One of the most common issues we see in terms of transaction stresses is not involving IT early enough in the process. Our survey found that only 50 percent of respondents said they typically involve IT in the transaction process – compared to nearly 80 percent who involved the finance department.”
Driessen said strategic IT expertise is now central to delivering a deal and “if this isn’t available on both sides of the fence in-house, it needs to be bought in”.
In other recent IT and due diligence news, PricewaterhouseCoopers (PwC) was fined £1.4 million by regulators after it signed off a report containing serious rule-breaking client money practices at JP Morgan Chase. The problems were caused in the first place following a major IT switchover that failed to keep pace with changed business processes.
The Accountancy and Actuarial Discipline Board (AADB) issued the fine as it ruled that PwC wrongly reported over a seven year period that JP Morgan had maintained the right systems to correctly separate clients’ money from its own.
