by Joe Gleinser
13. July 2009 20:07
In the first part of this series we started looking at the technical assessment process that IT should undertake prior to any M&A activity. In this second part we'll look at a some common financial risks which may escape some executies.
Non-Technical Assessment
Off-balance sheet leases: Equipment leases on computer networks and phone systems are very common. Leases allow the buyer to keep the liability off of the balance sheet and may be overlooked on the expense register. The most common lease, a Fair Market Value lease, has a balloon payment due at termination usually 36 to 60 months after purchase.
Telecom Contracts: Many companies go several years or more between negotiating telecom contracts. These companies can pay thousands of dollars per month too much. The company may be locked into long term contracts from 36 to 60 months. These services may be wholly incompatible with your needs. Termination fees are often the remainder of the contracted balance.
Microsoft Licensing: A popular Microsoft licensing method called Open Value requires the buyer to make three annual payments. It may not be easily recognized as an annual recurring transaction. This annual fee can easily exceed $50,000, and in some cases $100,000, in businesses with less than 100 employees.
Out of Support Technology: If equipment is out of manufacturer's support, it is prohibitively difficult to source parts. It is impossible to engage the manufacturer, which is often times required for assistance. Expect to replace or procure spare parts for all out of support hardware. Businesses that are good targets for acquisition will frequently postpone required hardware or software upgrades.