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2/2/2011
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8 Reasons CIOs Must Walk Point On M&As*

*Even if it means eventually putting yourself out of a job.

2. Admit Your Baby May Be Ugly

Are you ready to make a brutally honest assessment of the value of IT assets, both your own and those of acquisition targets? Internal assessments aren't important only when it's your company on the block. You also need to know if an acquisition has superior systems; more on that later.

On the buy side, many components make up the true value of an acquisition: customer base, market share, cash flow, profitability, location, contracts, intellectual and physical property, and technology. One of the most important exercises any CIO can undertake is determining what the value of the company's IT platform would be if it were acquired. This is different from a run-of-the-mill SWOT analysis. We're also not talking about CIOs in the software startups that get snapped up like Pez from a kindergarten floor. Rather, know whether any of your IT assets should enhance the company's purchase price, and if so, don't be shy about it.

In our experience, this is a sobering exercise. A well-run IT infrastructure is a source of pride, especially if it helps win business and deliver quality analytic data. There's no doubt solid IT adds value to the company, but the question is, do the systems themselves stay or get adopted by an acquirer? Does technology control a unique workflow or function that's intrinsic to creating value for the company?

Sorry, a great SAP installation isn't a value-add to a buyer, no matter how hard you worked on it. It may even get chucked if you're picked up by an Oracle shop. Think unique.

If your company is being sold and your systems are in fact part of the value equation, your focus then needs to be on maintaining great documentation. We're not just talking about license counts, but a comprehensive data model that explains workflows, data paths, and relationships among all systems. Your servers may still be scrapped, but if you can present the acquirer with this level of information, you'll facilitate the deal.

If your company is acquiring, this exercise is just as important. Often, buyers don't even consider scrapping their internal systems in favor of those of the acquired company--a shortsighted decision that could have disastrous results. About 10 years ago, a large U.S.-based distributor did a classic rollup, buying up a string of smaller regional competitors. The acquiring company had very strong core systems, but in almost every case, the e-commerce platforms of the acquired companies were stronger--yet were scrapped. Today, the distributor struggles with its online presence while many of its competitors use technology created by the acquirer's departed IT personnel. Don't assume you do everything better.

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