Digital T3 Risk Assessment

Take control of your acquisition using Wavertree Advisory’s Digital T3 Risk Assessment

Societal and Industrial Evolution Timeline

Due Diligence is a service to buyers tasked with uncovering and assessing latent conditions within a potential transaction
In the past, the majority of latent conditions hid in the physical realm
These conditions are now increasingly surfacing in the digital realm
Digital Due Diligence (DDD) is likely to soon subsume other due diligence activities given the consequences of latent digital conditions
Any attempt to conduct DDD solely on data and information presented by the seller is a disservice to the buyer

Our unique approach to DT3 Risk Assessment enables rapid discovery and validation of latent conditions

We use a proprietary toolkit and systematic method, to quickly surface latent conditions and identify T3 risks
T3 risks are those which surface and need to be addressed as part of the transaction, transition or transformation phases of an acquistion or merger
Our Digital T3 Risk Assessment combines reference architectures, public information and seller artefacts to gain a comprehensive view of the target’s digital extended enterprise
Conditions are discovered, validated and visualised for non-ICT executives
The value of the target is represented in the context of the buyer’s organisation and strategy
Impairment estimated based on program of work required to rectify discovered liabilities and T3 risks

Alignment of digital assets to buyer's strategy

Case No.1 - Construction materials manufacturer - blue chip customer base but ambitious program of work required to achieve projected profit

Required Investment by Capability

Supplier of construction materials used by building products manufacturers
Product range limited by plant equipment and technology
Industry standards for safety and energy efficiency historically resulted in local production
Poor profit performance to date
Ambitious but not yet commenced program of work to modernise technology and offshore production
Improved profit projections based solely on successfully executing the proposed program of work

Case No.2 - Fintech providing SME business loans - solid loan book growth but little evidence of technological differentiation

Provides low doc business loans to SME’s, loan book grown to >$500M across 12,000 customers
Most business functions supported by commodity SaaS except credit risk and website
Credit officer still involved in “automated” approval process, no evidence of AI or rules engine
Large on-shore in-house development team supporting bespoke website
No evidence of how technology is used to reduce regulatory compliance costs
Not really a Fintech despite many industry awards, functions much like a pay-day lender for small businesses

Assessment of Digital Assets

Case No.3 - Corporate merger - digital risks and impairments identified and phased to manage transaction and integration risks

Risks by Impairment Estimate and Priority

Businesses to be extracted from parent companies into stand-alone NewCo
Many functions currently provided by parents to be replicated in NewCo
Multiple legacy platforms and overlapping products range

Two options examined:

Merge current people, processes and systems into NewCo
Migrate customer contracts to NewCo with digitally native systems

T3 Risks discovered during due diligence sized, then prioritised based on needing to be addressed during the transaction (red), in transition (amber) or as part of the transformation (green)

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