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Acquiring Minds Want to Know

New software and services help buyers assess the IT systems of potential takeover targets.

Other vendors market software tools designed to analyze a buyout target’s business data. Oco Inc.’s Mergers and Acquisitions Solution, for example, is billed as being able to identify, extract, organize, and report on critical business information. According to William Copacino, Oco’s CEO, the software allows a user to identify problem areas and drill down to the lowest transaction level to find out what’s causing the foul-ups.

Oco’s software-as-a-service offering can extract and report on almost any data from such diverse sources as customer relationship management systems, procurement, and human resources. “This is the stuff you need to know,” says AMR’s Richardson. “How much obsolete inventory is on the racks? How many employees do you have? What’s the exposure in crucial areas?”

Bum Steer

For the most part, vendors are pitching their IT asset analysis offerings at companies undertaking buyouts. But the same services can also be applied after the fact, to help a purchaser get a handle on an acquisition’s IT infrastructure. Often, buyers find themselves saddled with inadequate — or incompatible — technologies.

Managers at Designs Inc. know all about that scenario. Back in 2002, the company acquired Casual Male, operator of the nation’s largest chain of big and tall men’s clothing stores. As the retailer’s current CFO, Dennis Hernreich, recalls, “The Casual Male [IT] infrastructure was in disrepair — little investment had been made to it over the years.”

Of course, five years ago, tools weren’t readily available to alert Designs’s executives to the woeful state of Casual Male’s IT infrastructure. But by 2004, management at Designs (which has since adopted its takeover target’s better-known brand name) realized that it desperately needed to repair the company’s rapidly failing IT infrastructure. Pivotally, company executives lacked real-time visibility into operational functions like product sales, channel management, and vendor relationships.

The problem was compounded by the conflicting data sources and legacy systems used by the retailer’s store, Web, and catalog operations. Not surprisingly, the welter of networks hindered senior management’s ability to react quickly and make informed decisions. “How do you drive a car without a steering wheel?” asks Hernreich. “That’s the situation we were in.”

Ultimately, Casual Male signed on with Oco. Using the company’s hosted software, data from multiple systems was retrieved and integrated, then cleansed, warehoused, and analyzed. Within six weeks, Casual Male’s senior management had access to reports providing insight into an array of financial and operational metrics. “We’re now defining our inventory better and are better able to keep things in stock,” says Hernreich. “Gross margins have improved significantly over the past few years.”

For his part, Kotler is convinced that thorough tech due diligence is crucial to the long-term success of any acquisition. “If there are things that are technically bad, or the IT strategy is bad, the company is never going to function; it’s never going to report,” says the Watermill CFO. “It’s never going to give you information that will be meaningful.”

John Edwards is a frequent contributor to CFO.

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