Acquisition Marketplace Review - The Journal of Applied M & A Theory

Evaluating the Target Company's Database Assets

Preserving business relationships and unlocking potential customer synergies is critical to the success of an acquisition. The acquired company's database can include extremely valuable information about its customers, prospects, vendors and other strategic allies. On the other hand, the database might consist of little more than names and addresses of people and organizations already doing business with the company.A review of an acquisition candidate's customer database and related technology (hardware, software and network) should be included as part of any due diligence review, whether the transaction is being contemplated as a standalone acquisition or merger. Preserving and unlocking the value of the target's database should be a part of every forward-looking acquisition plan.

Getting Started
With all of the financial, legal and tax complexities of a deal, it is easy to overlook the importance of database assets and address them after the deal closes. The first step to preserving business relationships and unlocking customer potential is to recognize their importance and commit to include them in the diligence and planning process.The next step is to identify the personnel who will be evaluating the information obtained about the target's database assets. Appropriate personnel from the buyer's sales and IT departments should definitely be involved early and their viewpoints solicited. If the buyer lacks experience and is going to need help with the database and IT integration process, it is wise to create and qualify a list of IT professionals that can help.Once an evaluation team has been assembled, the next step is for the buyer to evaluate their own database and related technology. This provides a necessary reference point for the evaluation of the target company's system. The Database Evaluation and Integration Checklist included in this issue of the Acquisition MarketPlace Review will help a buyer create a profile of their own system to use as a comparison tool for evaluating an acquisition candidate.In addition to collecting and analyzing information about a target's data assets, the team's task is to develop a preliminary approach for data integration, prepare an estimate of the costs, and communicate relevant findings to appropriate personnel within the buyer's organization. The information and analysis of the team can facilitate legal diligence and document drafting.

Questions For Evaluation and Diligence
The questions should focus on six key issue areas:

  • Database ContentData StorageHardware and Software Configurations)Data Collection MethodsApplications and Uses of the Data
  • System Administration and Management

The accompanying checklist, although not intended to be all-inclusive, will serve as a guide to gathering the information that you need in order to evaluate your own system, the target's system and to develop a budget and strategy to intelligently address the issues of database integration following the closing of the deal. You can use the checklist to stimulate thinking and as a model to create your specific list of questions.

Dealing With The Seller's Confidentiality Concerns
It pays to be sensitive to the seller's natural desire to protect intellectual property, especially when the buyer is perceived as a competitor or predator. There will be a natural resistance to provide data-even if it's only about their data. Explain to the seller that you are looking for information that will help smooth the integration after the deal and not looking to steal their secrets. Nothing you are asking for is unreasonable. You are not asking for proprietary data about their customers per se. You are only asking for general information about the type of data that is used, how it is gathered, stored and distributed and how it is used. However, if the target has a proprietary system that gives it a competitive edge, they may still balk. In that case, the intensity of your questions and the timing can be adjusted based upon the target's level of comfort or it may be necessary to negotiate some ground rules for the disclosure.

Evaluating The Target's Customer Database Profile
Once the data has been collected and a profile created, the next step is to evaluate the available information and identify any issues that need to be addressed or included in the acquisition plan. There are a number of critical questions to address:

  • Is the target's data current, accurate, complete?To what degree is the data used in the target's day-to-day operations?Is the system well maintained and documented?Can the system be adapted to changing business needs?
  • How does it compare to the buyer's system?

It is also advisable to do a SWOT analysis of the database assets, individually and combined. By looking at the strengths, weaknesses, opportunities and threats, the buyer will gain a better perspective on the situation and convert the Database Asset Profile into a plan of action that is ready for implementation immediately upon the close of the deal.From a business planning perspective, the key question is: What is the best way to utilize the target's data to maximize the potential of the deal and minimize its risks? The options are to leave the system alone, integrate one into the other, integrate with modifications or create an entirely new platform. Integrating two systems will generally require the least time and expense. Modifying an existing system and integrating it with either the buyer's or target's takes more time and money. Creating a new platform takes the most time and money, but sometimes yields the most desirable result.Once the likely solution(s) is identified, develop an estimate of the costs, assign responsibilities and develop a preliminary time line from the closing date.

The Morning After Closing
Once the transaction is completed, the buyer will have full access to the database assets including the actual data itself. The buyer can begin looking "under the hood" of the system. At this time, the situation should be fully reviewed and assumptions checked. Any new information should be incorporated in to the Database Integration Plan. The key questions are:

  • Where does the data go?Which technology should be used?What is the best way to populate the database?How much is it going to cost?How long will it take?
  • Who is responsible for implementation?

Including database assets as part of the acquisition plan and diligence pays dividends. There will be less confusion and indecision following the closing. It will compress the time needed to integrate and utilize the target's data. This places the buyer in a better position to preserve business relationships and to capitalize on the potential customer synergies that might have made the target attractive in the first place.

Robert Machiz
MoneySoft, Inc.

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