How to Validate Cloud Spend in M&A Transactions

Mergers and acquisitions (M&A) often involve a deep dive into the financials of the companies involved. One critical area that is often overlooked is cloud spend. Validating cloud spend is essential to ensure that the financial projections and operational costs align with reality.

Why Validate Cloud Spend?

Cloud services are a significant operational expense for many companies. Mismanagement or lack of visibility into cloud costs can lead to unexpected financial burdens post-acquisition. By validating cloud spend, you can:

  • Identify cost-saving opportunities
  • Ensure accurate financial reporting
  • Mitigate risks associated with over-provisioning or under-utilization

Steps to Validate Cloud Spend

  1. Review Cloud Invoices: Start by collecting all cloud invoices for the past 12-24 months. Look for trends, anomalies, and any unexpected spikes in usage.
  2. Analyze Usage Patterns: Use cloud provider tools or third-party platforms to analyze usage patterns. Identify underutilized resources and opportunities for optimization.
  3. Evaluate Contracts: Review contracts with cloud providers to understand commitments, discounts, and penalties. Ensure that the terms align with the company’s usage.
  4. Benchmark Costs: Compare the company’s cloud spend with industry benchmarks to identify areas of overspending.
  5. Engage Experts: If necessary, engage cloud cost management experts to provide a detailed analysis and recommendations.

Conclusion

Validating cloud spend is a critical step in the M&A due diligence process. By taking a structured approach, you can uncover hidden costs, identify savings opportunities, and ensure a smoother post-acquisition integration.