Buying A Company - Companies With Unevaluated IT Systems Faced With Expensive Problems

Crowe Horwath LLP warns private equity groups, lenders and strategic buyers about possible future costs

Buyers, who skip evaluating the information technology (IT) systems of a target company, may be making a very expensive mistake, according to Crowe Horwath LLP, one of the largest public accounting and consulting firms in the U.S.

“If the company you’re buying doesn’t already have the proper controls, infrastructure and information protection in place, you could be facing a very costly IT problem,” said Jeff Shaffer, a senior manager in the IT Advisory group of Crowe’s Performance practice.

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.

About Crowe Horwath

Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting and consulting firms in the United States. Under its core purpose of “Building Value with Values®,” Crowe assists public and private company clients in reaching their goals through audit, tax, advisory, risk and performance services. With 26 offices and 2,400 personnel, Crowe is recognized by many organizations as one of the country’s best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest networks in the world, consisting of more than 140 independent accounting and management consulting firms with offices in more than 400 cities around the world.

CONTACT: Jan Lippman, +1-312-899-8414 , [email protected], or Amanda Shawaluk, +1-312-899-8416 , [email protected], Crowe Horwath LLP
Web Site: http://www.crowehorwath.com

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