In today’s rapidly changing business environment, organizations must constantly disrupt their business models by launching technology modernization and innovation programs. Whether it’s advances in digital, cloud computing, the Internet of Things, artificial intelligence, blockchain or payment, businesses must invest in accelerating digital transformation to keep a ahead.
To keep up with changing market conditions, Indian companies are capitalizing on new opportunities and constantly building and reinvigorating their portfolio through mergers and acquisitions (M&A). With Indian technology companies increasingly taking the path of inorganic growth, the sector saw a significant number of acquisitions, with FY22 being a record year.
Technology plays a key role in the M&A strategies of Indian companies
According to an EY CEO Outlook 2022 survey, Indian companies’ M&A decisions in 2022 will be driven by the need to access key technologies to drive business growth. He also said that around 22% of Indian CEOs believe acquiring technology, manufacturing capabilities and innovative startups would be their top M&A activity, compared to just 14% of global CEOs.
With technology being at the core of value creation for most industries, India Inc. recognizes the role technology plays in driving their M&A strategies. Moreover, India’s vibrant startup ecosystem, the third largest after the United States and China, is creating innovative products and services that are helping to disrupt many businesses.
Increasingly, most savvy executives are realizing that their technology journey can be aligned with their M&A journey. According to another industry report, a recent merger in the oil and gas industry not only prompted a journey to the cloud, but also resulted in a 30% reduction in technology infrastructure costs with a return on investment ( ROI) significant.
The report also states that 96% of CIOs found technology due diligence helpful in uncovering key issues and opportunities during M&A transactions.
Why due diligence is crucial
Every year, billions of dollars are spent on M&A deals around the world with companies buying and integrating with other organizations. While most transactions are lucrative, mergers and acquisitions can present a host of risks such as financial instability and challenges arising from cultural fit and customer retention. All of these can potentially end the merger and acquisition.
Financial due diligence is extremely critical for businesses. Refinitiv, based in New York, is a company that provides a range of due diligence reports to buyers and sellers in the area of mergers and acquisitions, delving into the financial context of the subject. They also check for litigation, bankruptcies, and other alert issues.
In addition to economic and legal aspects, HR due diligence is also useful for identifying strengths and positive opportunities related to mergers and acquisitions. Greenstep, based in Scandinavia, for example, helps the client identify potential risks and pitfalls through reports that are most often prepared as part of a Financial Due Diligence report.
Now here’s why the importance of technical due diligence during mergers and acquisitions has grown in importance. The goal of technology due diligence is to understand the risks and opportunities. You need to know what your business buys and understand all the technical aspects of a product or service. This requires acquirers to perform technical due diligence to verify their investments and assess all possible risks. Access to the correct information can make or break an M&A deal.
In recent years, a new element of risk, known as the feasibility of technological integration, during the due diligence process of mergers and acquisitions has emerged. Since technology plays a major role during mergers and acquisitions, the success of integration largely depends on the software of the organization. Obviously, the due diligence phase in M&A transactions requires a holistic approach, focusing on financial, legal and technological aspects.
Using Software Intelligence in M&A Technology Due Diligence
M&A transactions can become very complex and software can be a black hole, with companies often unaware of the other party’s software. The quality of the software can have a significant impact on the accuracy of the evaluation of a target and the evaluation of post-acquisition integration costs. This increases software risks as applications may include vulnerabilities, technical debt, or be incompatible for integration. It can make matters even worse, leaving companies with a failed merger, malware attack, or data exfiltration.
Therefore, guesswork and due diligence based on interviews of critical software assets is simply no longer an option. For starters, it’s important to have a vendor that can leverage cutting-edge technologies to increase efficiency throughout the M&A lifecycle.
For example, we help a number of transaction advisors make strategic decisions, including finding scale, new technologies or entering new markets, through mergers and acquisitions, divestitures or joint ventures where precise software intelligence can make the big difference between a good deal and a risky one.
Speaking on reducing technology M&A risk and accelerating value creation at the Software Intelligence Forum this year, Keith MacKay (Managing Director) – Erik Oltmans (Associate Partner, EY Parthenon) also highlighted the same thing and said software intelligence is “the game changer in how we do due diligence in M&A and empowers our clients to make better decisions.”
Erik highlighted how, due to the changing M&A landscape, the consulting giant is using Software Intelligence in its transaction advisory services and that private equity firms now value technical valuations, especially for targets with significant software assets. He went on to explain how using our rapid scan technology helped them make these assessments possible with limited access to target systems, custom quality metrics, and the liability implications of open source components. , all of which are essential for M&A due diligence. .
On the other hand, Cognizant overcomes obstacles to transformation, avoids structural defects and finds solutions using our software. This allowed them to generate an intuitive blueprint that helps design modern architecture for legacy applications, visualize future designs, and plan migrations from as-built designs.
There is no doubt that key vendors like these are accelerating the collection of accurate asset intelligence during M&A due diligence and applying the results for valuation, risk assessment and post-merger planning. acquisition. Using key levers like software intelligence can provide a unique in-depth assessment that allows your business to quickly assess its application portfolio. This is not only essential in the case of mergers and acquisitions, but also for understanding an application landscape that organizations have just adopted.
The author is SVP Channels for APAC at Cast Software
Disclaimer: The opinions expressed are those of the author alone and ETCIO.com does not necessarily endorse them. ETCIO.com will not be liable for any damage caused to any person/organization directly or indirectly.