Don’t Ignore IT Diligence During the Purchase Process

Don’t Ignore IT Diligence During the Purchase Process

February 08, 2023

Technology is rapidly evolving, and businesses seem to always be playing catch-up. When cutting-edge technology is available even on a smartphone, businesses need to have a robust strategy for keeping their IT current with evolving technologies.

Ignoring IT diligence when purchasing a company can lead to potentially negative consequences, such as significant investments required to upgrade the IT environment and the risks of non-compliance with regulations. During a purchase, comprehensive IT diligence of the company is required to understand both the current capabilities and future adaptability of the IT environment to be purchased.

Strategy and Organization

A comprehensive approach to diligence starts with evaluating the IT environment’s strategy and organization. People are the key to the success of an IT organization, and examining the staffing, average tenure, and hiring needs will generally help determine the level and type of skill available within the firm. IT leadership should also be evaluated, as leadership needs to have a clear roadmap to achieve strategic outcomes while maintaining smooth and efficient operations.

In addition to this, the seller’s relationships with key vendors and agreed-upon service levels provide an understanding of the effectiveness of its current third-party providers and any opportunities to renegotiate contracts for improved performance at lower cost. This is crucial, as third-party providers tend to be associated with highest possibility to provide synergies and value to a company purchase.

Digital Strategy and Products

Technologies such as microservices and application programming interfaces (APIs) have enabled a loose coupling of application architecture and a greater push towards proprietary applications. A digital strategy and product assessment helps evaluate the level of software product capabilities, the quality of end-user experience, and the planned strategic evolution of the product. A robust product and/or platform needs to be supported by a seasoned engineering team with well-defined processes. IT diligence during a purchase will help the buyer understand the true capabilities of the product and uncover any major limitations that may to diminish the product’s value to the overall deal.

Network and Infrastructure

Network and infrastructure are critical components of IT, as availability and reliability of key applications and services are crucial for business operations. With the increase in the use of cloud-based technologies, it is important to understand the network’s ability to scale without affecting the performance. Quality, maintenance, and age of infrastructure and security components all contribute to the health of the overall IT environment.

Data Privacy

Data privacy is extremely relevant for organizations operating and/or collecting data across the globe. Privacy standards necessitate the introduction of several measures, including processes and technology that require evaluation in the diligence phase to determine compliance. Representation and warranties insurance specifically look for adherence to data standards prior to signing off on the deal.


The state of a company’s cybersecurity can have a major impact on the success of a deal. Given the increase in cyberattacks such as ransomware, companies of all sizes need to have a robust cybersecurity environment to reduce both internal and external risks. A robust cybersecurity program encompasses governance, infrastructure, security standards and regulations, and much more.

Synergies, Value, and Cost of Ownership

Lastly, it is important to understand the IT organization’s annual operational and capital costs to determine if IT is funded appropriately or investments with significant downstream impacts will need to be made. Most of the deals generally result in one-time investment and associated incremental costs which should be identified in the early stages to set the right expectations. A comprehensive IT diligence also helps determine opportunities to realize synergies and improve the overall deal value.

The Right IT Diligence Partner

Properly grasping a company’s IT environment is necessary to understanding the value of the company as a whole — the synergies of a purchase, any investments needed to improve the purchased company’s IT environment, and any IT risks that will need to be mitigated. The proper IT diligence partner will be able to walk with you step by step in understanding a potential purchase’s IT environment as well as the impact of that environment on the overall deal.