Shadow IT – Impacts on M&A Deals
Guest Post By Joseph Augustine
Shadow IT – Impacts on M&A Deals
By Joseph Augustine
Operating from the shadows, companies small and large, have dealt with unauthorized systems on the network. This has led to an increase in IT spending. As an M&A Advisor, IT Mentor, or Investor, a company must look attractive on its books in my initial analysis before I consider buying or investing.
As a result, we’ve seen companies begin to shift their focus on IT adoption to increase valuation. They have begun cloud adoption; injecting new analytical tools such as AI, and they have leveraged business technologies to help them win, serve, and retain customers.
However, unauthorized systems on a company network changes this landscape and can be catastrophic to the bottom-line. Furthermore, there can be multiple sources of truth – multiple financial reporting systems that yield different results, leading to auditing fines and violations.
Violations in various compliance and security regulations such as PCI, HIPAA, Sarbanes-Oxley Act (SOX), and other regulatory standards have emerged.
For example, the SOX Act requires the following:
CEOs and CFOs be directly responsible for the accuracy, documentation, and submission of all financial reports. Inaccuracies could lead to monetary penalties and jail time for non-compliances.
SOX requires formal data security policies, communication of data security policies, and consistent enforcement of data security policies. Therefore, IT systems must be implemented and monitored to ensure PCI, HIPAA, and SOX compliance regulations and acts respectively are strictly followed to protect and secure all financial data stored on-premises or in the cloud.
SOX also requires companies maintain and provide documentation that they are continuously monitoring, measuring, and reporting SOX compliance objectives.
To that end, companies that neglect IT systems monitoring and maintenance or take shortcuts, see a decrease in revenue and valuation. If one wants to scale for example, one needs a Customer Relationship Management (CRM) system such as Salesforce, HubSpot, or Keap. Whether it’s run on the company network or a SaaS. Website Management Tools: Yoast SEO, Google Analytics, and Elementor also fall in this category.
The bottom-line is that without understanding the importance of IT systems and the value they bring to an M&A deal; any deal will look like a great deal. However, having the right IT Mentor/consultant, he or she can help you rule out bad deals and good deals, and open the door for you to see a great deal as an excellent or outstanding deal.
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See ya in the inbox!
Sebastian Amieva
Mergers and Acquisitions Expert