IT-ODD Assessment vs. Diagnostic Discussion
Why is Information Technology Operational Due Diligence (IT-ODD) an Independent Assessment vs. a Consulting Diagnostic?
This distinction is critical for the acquiring entity to understand because it defines the fundamental objective and intent of the IT-ODD services provider’s engagement as well as the IT-ODD services provider’s anticipated ongoing business relationship with both the acquirer and the Target. Any circumstance in which an IT-ODD services provider anticipates a development of an ongoing business relationship with the Target is not in the best interests of the acquirer, as well as compromises the independence of the IT-ODD services provider regarding the transaction.
An IT-ODD effort is an “independent assessment” that seeks to provide an objective, unbiased evaluation of the IT capabilities which exist, including any budgeted, planned enhancements, and a determination if those existing IT capabilities will be an “asset” or “liability” to the Target and the acquirer’s interests post-close. The findings of an independent assessment are statements of fact based upon specific evidence.
Where weaknesses are identified requiring remedy — if properly explained, Target personnel and/or any competent services provider generally available in the market should be able to understand and implement the recommendations as described.
By definition, an independent assessment is a standalone activity that cannot be conducted with any expectation of follow-on services or revenue without compromising “independence”.
A “consulting diagnostic” evaluates the deployment of IT capability components with the intent to identify tactical weaknesses within the existing configuration and operational practices in order to define specific remedies and a plan to assist in the implementation of those defined remedies. By definition, the consulting diagnostic is subjective since it anticipates a multi-phase services engagement and is usually biased by the specific capabilities and resource availability of the services provider, especially those personnel conducting the diagnostic, thereby resulting with a continuity concern (i.e., facilitating the one-stop-shop services delivery model).
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In our opinion, a tactically focused “consulting diagnostic” can be a valuable exercise, especially when specific IT capability component weaknesses have been identified. However, the “consulting diagnostic” approach does not appropriately diligence the Target’s IT capabilities as is required in a pre-close transactional setting. Often, acquirers engage a “consulting diagnostic” approach for IT-ODD seeking the convenience of the “one-stop-shop” and “familiarity continuity” embedded within the approach. However, it has been our experience that, with the deployment of open-architecture technologies and commercial application software packages or development tools, the need for such convenience is not necessary with these IT deployment practices. Aqualis Advisors’ strategically focused IT-ODD advisory services leverages experience to provide a judgment-based, independent assessment of the Target’s IT capabilities. While all IT-ODD and IT Assessment advisory services engagements have resulted with suggestions for improvement and/or remedies for correction of itemized deficiencies, these recommendations are not designed to require our ongoing, fee-based participation in order for the acquirer or Target to achieve successful implementation post-close, except as may be specifically requested by our Private Equity Clients. |
The key Questions addressed by an effective IT-ODD Platform Acquisition Assessment — Are the Target’s IT capabilities sufficient? If No — then…
In an independent assessment, remedy should always be clearly understood and implementable by either the Target or any sufficiently qualified external 3rd party entity.
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As an IT-ODD advisory services provider not actively seeking the generation of follow-on revenue from our engagements, our practice is to define our suggestions and remedies with the intent that additional assistance is optional, but not necessarily required by Aqualis Advisors.