Skip to content

Technology Due Diligence: The Private Equity vs. Strategic Corporate Buyer Perspective

Technology Due Diligence

Technology due diligence varies when performed by two major players in the field: Private Equity (PE) firms and Strategic Corporate Buyers.

Strategic Corporate Buyers: Leveraging Industry Knowledge in Technology Due Diligence

Strategic Corporate Buyers, often already established within the same industry as the target company, possess an edge regarding technology due diligence. Their intimate understanding of the industry’s technological landscape allows them to conduct a more streamlined, targeted investigation.

In such cases, technology due diligence is typically performed by internal staff who possess a comprehensive understanding of industry-specific technology requirements.

This can provide a more pointed and efficient due diligence process, allowing for a focus on specific technological assets and practices that might be incorporated post-acquisition, especially in a reverse merger scenario.

However, this intimate familiarity can be a double-edged sword. By relying too much on existing industry knowledge, strategic buyers may overlook certain elements in the technology due diligence process, potentially leading to problems during the post-merger integration phase. Thus, it’s imperative for strategic buyers to balance their industry knowledge with a comprehensive approach to technology due diligence.

But people often think the ‘larger’ firm will be less agile and use more outdated technology. It’s not always the case. Sometimes the smaller firms are more risk averse.

Private Equity: A Thorough Approach to Technology Due Diligence

Especially when entering a new industry, PE firms typically conduct a more rigorous and exhaustive technology due diligence process. This is driven by the need to thoroughly understand the target company’s technology assets, systems, practices, and position within the broader technology landscape.

While this in-depth approach to technology due diligence can be demanding for the target firm, it offers distinct advantages. This meticulous examination can unearth potential risks and opportunities that may have been overlooked.

It provides valuable insights, irrespective of whether the deal proceeds. As some investors have observed, even a failed deal following an extensive technology due diligence process can serve as a ‘free audit,’ spotlighting areas of potential improvement.

Conclusion: The Importance of Thorough Due Diligence

In summary, strategic corporate buyers and PE firms bring their unique perspectives and methodologies to the process of technology due diligence. While strategic buyers lean on their industry knowledge to streamline the process, PE firms deploy a thorough, broad-based approach to compensate for their potential lack of industry familiarity.

Each approach, with its distinct advantages and potential pitfalls, underscores the importance of comprehensive technology due diligence.

In an era where technology is critical in business operations and strategy, understanding a company’s technological capabilities and assets is essential for assessing its overall value. Therefore, regardless of the type of buyer, thorough technology due diligence is an investment that invariably pays dividends in the long run.

Picture of Hutton Henry
Hutton Henry
Hutton has worked with Private Equity Portfolio firms and Private Equity funds since 2015. Having previously worked in post-merger integration for large firms such as Ford and HP, Hutton understands the value of finding issues prior to M&A deals. He is currently the founder of Beyond M&A and provides technology due diligence for VC, PE and corporate investors, so they understand their technology risks before entering into a deal.

Take our FREE Scorecard to find out if your investment is at risk.

Discover the value of technology in your portfolio and target investments to gain more confidence and uncover potentially significant risks that could affect the value of a sale or an acquisition.

More Stories

Back To Top