The IT Questions M&A Teams Need To Ask Earlier

In modern transactions, technology has become inseparable from business value. Yet technology due diligence is still treated as a late-stage exercise. The deal team focuses on financials, tax, employment, and commercial contracts. Information Technology (“IT”) is treated as a back-office function, something to be tidied up post-completion. Some organisations believe that IT only matters when the target is a technology company or when software is the primary asset. This assumption is wrong, and it is increasingly expensive.

Every modern business – whether it manufactures goods, provides professional services, operates a retail chain, or runs a logistics network – depends on technology to function. Enterprise resource planning (the industry term is “ERP”) systems, customer databases, cloud-hosted platforms, SaaS tools, payment gateways, and managed security services are not peripheral to these businesses. They are operational foundations. When a transaction disrupts those foundations (because a critical licence cannot be transferred, a hosting contract contains a change of control termination right, or a shared system cannot be separated without months of complex migration work) the consequences are felt in business continuity, cost and risk.

Technology due diligence helps assess whether a potential target’s technology supports its value proposition, aligns with growth projections, fits into the buyer’s strategic framework or assesses the complexity and cost of integrating the target’s IT systems with that of the buyers. It can also reveal hidden liabilities, undocumented integrations, inconsistent data models, ageing infrastructure, security gaps, hidden data breaches, and unlicensed software, while assisting in evaluating compliance with regulatory requirements.

So, what are the IT questions that M&A teams should be raising at the outset of a transaction? In this first of a two-part series, we explore these from the perspective of sellers and we cover the technology considerations depending on whether the transaction is structured as a share sale or a sale of business/assets.

The seller’s perspective

Sellers who invest in IT due diligence preparation consistently achieve better outcomes. They identify issues before a buyer does, remediate what can be fixed, and disclose the rest transparently. This reduces the scope for price chips, accelerates the transaction timetable, and avoids the credibility damage that comes from a buyer uncovering problems the seller should have known about.

The starting point is deceptively simple: does the seller actually know what IT contracts it has, what systems it operates, and what data sits where?

Share sales

In a share sale, the target entity continues to exist. Its contracts remain in place, its regulatory obligations continue, and its liabilities (known and unknown) transfer with it. From an IT perspective, this means that the seller should expect the buyer to scrutinise the full IT landscape and should be ready to present it clearly. The seller's advisers should assemble, at a minimum: a schedule of IT contracts: software licences and SaaS subscriptions (sometimes referred to as a software bill of materials or “SBOM”), cloud hosting agreements, managed services arrangements, and cybersecurity contracts, and key commercial terms, expiry dates, and renewal mechanics. Importantly, each contract should be reviewed for change of control provisions. If a material IT contract gives the counterparty a right to terminate upon a change of shareholding, the seller needs to know about it before the buyer does. The seller may then choose to approach the IT provider for a waiver or consent or at least be prepared to address the issue in negotiations.

Asset and business sales

Asset and business sales present different challenges. Here, the seller is not transferring an entity but a collection of specified assets, and the question is whether the IT assets and contracts necessary to operate those assets will actually transfer.

IT contracts are often challenging to navigate. For example, a software licence is a contractual right personal to the licensee. It does not attach to the business assets like a label on a piece of equipment. If the licence agreement prohibits assignment or sub-licensing, or if such licence agreement contains other restrictions in terms of authorised users, the buyer may acquire a business that depends on software but has no right to use post sale. The seller should identify this risk early, review the relevant IT contract terms, and where necessary, engage with the vendor to explore assignment, novation, or a fresh licence or other agreement for the buyer.

Carve-out transactions

Carve-outs are where IT complexity reaches its peak. When a seller is divesting a division or business unit that shares IT infrastructure with the retained group (e.g. a common ERP system, a shared CRM platform, integrated payment processing), the question of how to separate those systems is not merely technical. It is commercial, contractual, and often far more costly and time-consuming than anyone initially anticipates.

The seller should begin by mapping which IT systems are dedicated to the carved-out business, which are shared, and which are group-wide. For shared systems, the key questions are: Can the relevant licences be split? Can new licences be obtained for the buyer? What will it cost, and how long will it take?

In most cases, the answer involves a transitional services agreement (“TSA”). The TSA is a contractual arrangement under which the seller continues to provide access to shared IT systems for a defined period post-completion while the buyer builds or procures its own replacements. The scope, duration, service levels, and pricing of a TSA can become heavily negotiated, and they are far better negotiated from a position of preparation than improvisation. A seller that enters the transaction without a clear understanding of its own IT dependencies will struggle to define the TSA's terms and will likely concede more than necessary.

IT due diligence is not a specialist concern reserved for technology transactions. It is a core component of any well-run M&A process. In modern transactions, understanding the future IT landscape is no longer just about reviewing systems in isolation. The businesses being bought and sold today are, without exception, dependent on technology – and the contracts, licences, and compliance frameworks that govern that technology are as much a part of the deal as the financial statements or the lease portfolio. M&A teams must assess how the business will realistically operate after the deal closes. The real question is no longer whether technology will affect the deal, but whether the conversation started early enough to matter.

In part two of this series, we will explore considerations from a buyer’s perspective.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.