<p>The importance of the appropriate focus on information technology, including  software, in due diligence projects where the target is an information  technology company, or where the target&rsquo;s business is heavily reliant on  information technology is obvious.&nbsp; However, the extent to which information  technology permeates all aspects the very existence of corporate entities today,  dictates that information technology be afforded adequate attention in all due  diligence projects.<br /><br />This article provides a short introduction to some  considerations that are relevant when preparing for an information technology  disclosure or considering such disclosed information in a due diligence  contexts.<br /><br />The point of departure in considering the information  technology aspects of a due diligence is the same as that for any other aspect  of the due diligence process &ndash; the structure of the proposed transaction.&nbsp; This  could include for example a share purchase, an asset purchase or a merger.&nbsp;  Depending on the proposed structure of the transaction, different aspects of the  information technology due diligence may require special consideration.&nbsp; For  example, in the event that a proposed transaction is an asset transfer,  prohibitions or limitations on the assignment of software licenses will be  relevant, while change control provisions will be relevant in the case of share  purchases.<br /><br />Moving on from the structure of the proposed transaction, it  is important to form an adequate understanding of the information technology  that will form the subject matter of the due diligence review.&nbsp; In broad terms,  it will be necessary to obtain details of (i) the information technology assets  owned or used by the target, (ii) the rights of and obligations to third parties  in respect of those information technology assets and (iii) documents relevant  to both the information technology assets and third parties, including for  example documents related to service levels, technical and functional  specifications and possibly warranties.<br /><br />The adequate disclosure of  information technology assets and the particular role such assets fulfil in the  target&rsquo;s business is important as it will enable prospective buyers to determine  how material particular assets and third parties are to the business operations  of the target and accordingly the value of the proposed transaction.&nbsp; By way of  illustration, if a particular software asset provides the target with a  competitive advantage in its industry, or is otherwise a direct driver of  revenue, that particular software asset will be significant to the prospective  buyer and accordingly in the due diligence review.&nbsp;<br /><br />Information  technology assets will include hardware and software.&nbsp; With respect to hardware,  relevant information could include (a) diagrams of the hardware architecture,  (b) an inventory of the relevant hardware assets, (c) relevant third party  agreements such as license, purchase, support, maintenance and service level  agreements and (d) possibly disaster recovery and business continuity  protocols.<br /><br />With respect to software assets relevant information could  include (a) an inventory of software used by the target, including information  on ownership and licenses, (b) agreements related to the software assets such as  license, support, maintenance, development, assignment, and escrow agreements,  (c) documentation, including policies, manuals and information on user access  protocols and (d) active or planned development programs.<br /><br />In respect of  both hardware and software assets, agreements with third parties and in  particular license agreements are of particular importance.&nbsp; These agreements  contain rights, and the scope of those rights, that the buyer may acquire  through the proposed transaction.&nbsp; Licensing provisions may however, not only be  contained in &ldquo;license&rdquo; agreements, but also as part of various other agreements,  such as development, joint venture, consulting and possibly settlement  agreements (to mention only some).&nbsp; It is to be noted that the use of open  source software is subject to the terms of open source software licenses and  where open source software had been used by a target (and such use has become  prolific), steps may need to be taken to identify the relevant open source  software, license and source, as well as the information technology asset it has  been integrated in and the nature of such integration.&nbsp; Open source software  licenses can be important in a proposed transaction as they may dictate the  terms on which software derived from such open source software is licensed to  third parties.<br /><br />Agreements with third parties are also relevant in the  event that the information technology operations of the target are to be  integrated with that of the proposed buyer.&nbsp; The buyer&rsquo;s due diligence may  identify duplications in the information technology systems of the buyer and  that of the target that it may wish to remove.&nbsp; Where such duplications relate  to third party contracts, it is important that the relevant contracts are  considered with a view to the possible termination or cancellation  thereof.<br /><br />The focus of the approach to the due diligence set out above is  on a more &ldquo;traditional&rdquo; information technology environment.&nbsp; Information  technology is increasingly being acquired as &ldquo;software as a service&rdquo; or in the  context of &ldquo;cloud computing&rdquo; and where a target engages or makes use of such  services, this category of agreements will require separate and careful  technical consideration.&nbsp;<br /><br />As a result of the extent to which information  technology has become an integral part of the way in which businesses operate,  if not often a significant contributor to or source of competitive advantage,  the appropriate review of information technology during a due diligence project  is essential.</p>