16 Dec IT's role in M&A can be the difference in successful business unions
In mergers and acquisitions, buyers often prepare themselves to take on tangible assets, but neglect to consider the importance of technology to the functional success of the business after the transaction closes. Both buyers and sellers should focus on technology early on and throughout the merger and acquisition process and involve their internal information technology (“IT”) departments and experienced IT attorneys.
In structuring and documenting merger and acquisition transactions, the buyer and seller often focus too much on the deal’s economic aspects and overlook the transaction’s impact on the operational “backbone” of the business, including the need to merge technological aspects of two entities into one. Paying close attention to how the business will operate immediately after the transaction closing, from the very beginning of the deal, maximizes the likelihood that a business sale will be viewed as a success.
Considering at the outset the operational needs of the business post-closing affords both sides 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. Potential pitfalls such as key technology that cannot be transferred, processes that don’t provide the needed value and disagreements about exactly what is needed after closing to successfully run the business may arise after the deal closes and negatively impact the business as a whole.
Unfortunately, these issues are often only given a cursory glance by the teams documenting the merger and acquisition transaction. Oftentimes, the plan to keep the business running on the day after the closing and transfer operational control to the buyer is left solely to the IT and other operational departments of the companies. Although well-positioned to help identify issues and risks and mitigate them as part of the overall deal, the teams working on these issues are often not involved with the teams working on the sale transaction, resulting in an uncoordinated and sometimes costly transition.
Planning for an effective post-closing transition and integration involves at least three phases:
- Preliminary planning and analysis as part of the deal’s due diligence.
- Structuring a transition services agreement which 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
- Consideration of how the buyer will eventually move from the transition services and proceed toward post-transition integration, which often requires the seller to leverage its existing outsourcing relationships or create new ones.
Business acquisitions 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 and use the knowledge and experience of their IT and outsourcing lawyers to help plan for and document the agreements necessary for a smooth transition. In addition, these experts can 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, and provide an estimate of the associated expenses to smoothly meet the parties’ post-closing needs and goals.
The degree to which the parties focus on these issues early on in the transaction is often a key factor in the success of the transaction. The economic details are important, but giving consideration to the business’ intellectual property and technology needs as a part of the functional aspects of the business will save time and money after the sale is complete.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.
WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.