Whilst my audience tends to be for investors, this one is for the tech community, CTOs, CIOS. Anyone who has been recently told they need to ‘undertake Technology Due Diligence’ and need some guidance on general areas to assess,
We often get calls from people who’ve just been told their firm is acquiring a new company, and they’ve suddenly become responsible for the technology acquisition. They were already managing their own complex tech environment, and now they’ve got two to deal with.
We’ve all been there before, and everyone has to start somewhere. So, here’s a list of what we think is useful to help you navigate the tech side of things smoothly.
Keep in mind, technology only accounts for about 40% of the total due diligence process. The key here? Everything you assess has to tie back to commercial outcomes. That’s it—our favourite word: value. Everything needs to connect to value. Which is the topic of our Podcast if you’re interested.
What’s the plan? (a.k.a the Investment Thesis).
One critical aspect before you embark on a technology due diligence is how your firm plans to acquire the business and the intended value that’s meant to create. Otherwise you are running this assessment blind.
If you or your firm doesn’t know where you’re meant to be going with this firm, in terms of tech, that’s red flags already. And to put this in perspective, we frequently meet firms that have ‘buyers remorse’ soon after the deal complete as they realise there’s little they can do to create more value for their customers.
So (a) find out why you’re buying this firm. (b) what value it will add and (c) what assumptions are being made about the technology and how it fits the groth plans. Hint: those assumptions are often wrong! And the right place to address this, is right at the start. I empathise that in some firms, the technology leader has minimal input into a deal but if you can present issues constructively, and not like an IT person, please help the rest of us in the tech idnsutry by calling it out.
As I’ve been in this field a few decades, the one thing you learn is often there is no integration plan. So we used to run courses with our good friends at Fifth Chrome to groups of M&A experts help them understand the challenge of integration and how to approach it. You can find the course book here which is a good area to examine an M&A acquistion and how it compares to your fim.
Sometimes it’s too late to answer these questions, the deal is steaming ahead. But it does not stop you completing this work yourself, so you have clarity on how to strategically approach this M&A.
We have ~400 questions, when we undertake a professional tech DD. But here’s the headline questions to be considering:
1. Understanding the Team
Behind every tech environment is a team of people, and those people drive the technology. You’ll need to assess their strengths, how they work together, and whether they can handle the increased demands that come with a merger.
Things to check:
- Are there clear leaders, and do they have the right expertise?
- What skill gaps are there?
- Is the team structured well for scaling? Is this the right team for scaling.
- Will the team culture blend smoothly, and can they adapt to new tech?
- Team’s attitude, do they follow the three ‘Cs” (below) as these are vital for growth
2. Assessing the Architecture
The architecture is the core of the tech. Is it flexible and robust enough to handle growth, or will it break under pressure? We need to look beyond today’s requirements and think about future scalability.
Focus areas:
- Architecture design—does it allow for future growth? How can you integrate it?
- What are the ‘Known, Knowns’? (Everyone has them)
- Where are the single points of failure?
- Are the people who originally designed it still in the team, and are they staying?
3. Code Quality and Technical Debt
Good code should be clean and scalable. But if there’s technical debt—code that’s been written in a way that will require significant refactoring later—you’ll need to factor that into your decision-making. A key factor is how much time they are spending keeping the lights on versus genuine innovation.
Look for:
- How clean and well-documented is the codebase?
- What’s the testing process like?
- Is there a backlog of technical debt that could slow down progress?
4. Cybersecurity Risks
No one wants to inherit a cybersecurity nightmare. With increasing threats and stricter regulations, this is a critical part of your due diligence. Especially as we strongly believe acquisitions are particularly vulnerable after an M&A deal.
Key points:
- What is the business’s attitude to cyber security?
- How secure is the system overall? Are there clear security protocols in place?
- Are sensitive data and systems adequately protected?
- What’s the incident response plan? How has the company handled breaches in the past?
- Are they compliant with relevant standards (e.g., GDPR, ISO)?
This is a factor in the most common issues we see during Tech Due Diligence and is featured in this workbook:
5. Intellectual Property and Licensing
If you’re acquiring a tech company, chances are the intellectual property (IP) is one of the most valuable assets. But is it protected, and do they have the right licenses in place?
Check for:
- Who owns the IP, and is it secure?
- Are there any third-party licenses that could become a problem later?
- Are they using any open-source software, and is it properly managed?
6. The Product Roadmap
You need to know where the company’s headed in terms of product development. Are they innovating, or are they stuck in maintenance mode? A strong product roadmap aligned with market trends is essential.
Questions to ask:
- What’s planned for the future, and how aligned is it with customer needs?
- Are there R&D resources being allocated to innovation?
- How are they tracking industry trends and competitors?
7. Data and Analytics
Data is gold these days, but only if it’s managed and used effectively. Look at how the company collects, stores, and analyses its data, and whether it’s leveraged for strategic decision-making.
Evaluate:
- How is data being stored and protected?
- Are there strong analytics capabilities in place?
- How is customer data managed, and is it compliant with regulations?
8. Financial Alignment of Technology
Finally, let’s talk about the finances. Technology should drive growth, not sink costs. Any tech investments need to align with business goals, and you want to ensure the current setup can scale without breaking the bank.
Consider:
- How much is currently being spent on tech, and what’s the forecast?
- Is the technology infrastructure cost-effective, and will it scale?
- Are there clear returns on tech investments?
Technology Due Diligence leads to Value
At the end of the day, technology due diligence is about much more than ticking boxes. It’s about connecting the dots between technology and the bigger commercial picture. You’re not just looking at whether the tech works today—you need to think about how it supports the future growth of the business.
And as always, everything must link back to value.
