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Nine Signs Indicating Acquirers Should Perform IT Due Diligence

OAK BROOK, Ill. Jan. 18, 2011 Crowe Horwath LLP

Jeff Shaffer

According to Shaffer, the following warning signs indicate that IT due diligence is needed:

  1. Lack of confidence in the financial reports generated by the current systems
  2. Inability to generate common operational reports
  3. Multifaceted, intercompany transactions, especially related to consolidations and eliminations
  4. Complex supply chain transactions
  5. Multiple systems that interface with each other, such as separate point of sales, inventory order entry or billing systems
  6. Inability to use the current system to reconcile balance sheet accounts
  7. Considering a carve-out situation, or buying a division or business unit of an existing company to create a new, stand-alone company or roll into another company
  8. Buying a company for its technology or buying a technology company
  9. In, or approaching, bankruptcy, as IT budgets are often one of the first cut

Shaffer added that when deals close without proper IT due diligence, buyers may not realize that the lack of spending on IT systems can make earnings appear higher than they should be. "Not only might buyers see lower-than-expected financial results after purchasing the company, they may also have to spend more money than expected to remedy the situation, as well as possibly put the business at risk in terms of operations or customer service," he said.

Crowe Horwath the United States

SOURCE Crowe Horwath LLP

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