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Technology Due Diligence: Why Market Always Trumps Tech

Maket trumps everything in Tech Due Diligence

As a Managing Partner of a Technology Due Diligence firm in the UK, I want to share some insights for investors and company owners. I’ve noticed something fundamental in my journey – the market always trumps tech.

My Experience in Post-Merger Integration Projects

I used to work predominantly post-deal on post-merger integration projects. During this time, I noticed a glaring oversight – insufficient focus was placed on the technology. This neglect became obvious due to the numerous issues we encountered when integrating companies from a technological perspective. Despite the challenges and added costs, we always got through.

The Shift to Pre-Deal Technology Due Diligence

This drove me to explore the ‘pre-deal’ side of things. My aim? To prevent these issues by enhancing the technology discovery process, a.k.a Technology Due Diligence. I began this journey about seven years ago, committed to averting post-merger complications.

Assumptions About Tech Investments and Tech DD

I came into the market with a few assumptions, some of them listed here:

  • The growth in tech investments indicates a growing need for Technology Due Diligence.
  • With only 9% of deals undertaking Tech DD, there’s a massive growth opportunity.
  • Our People-First approach can disrupt the Technology Due Diligence market.

Lessons Learned in Technology Due Diligence

Of course, I was wrong with my assumptions. But I learnt these key lessons:

  • Success in Technology Due Diligence is about building solid relationships across the investor community.
  • A good P&L might signal satisfactory tech, but a Tech DD offers a kind of insurance against unforeseen tech issues post-deal. But as one CIO told me years ago, “Hutton, if the P&L is good, the tech is good”. I understand that will trigger some people, but it seems to be playing out that way.
  • CTOs shouldn’t be ashamed of Monoliths; they empower businesses and generate significant revenue.

The Ultimate Lesson in Technology Due Diligence: Market Trumps Tech

After reviewing numerous companies, a clear pattern emerges. The market size and demand drive business growth. Uncovering the market is the most exciting aspect of the Technology Due Diligence process.

The Importance of Market Assessment in Technology Due Diligence

Why does the market matter so much? Because large, demanding markets provide hope and abundant opportunities for management teams. In a large market, firms can allocate funds to fix their tech and continue to unearth additional market segments.

Emphasizing Market in Technology Due Diligence

In conclusion, while Technology Due Diligence is crucial, it’s essential to remember the pivotal role of the market.

It’s part of why I loved reading Uri Levine’s book, as you can tell his mindset only works on huge international markets with painful issues. He thinks of international car navigation (Waze), international public transport maps (Movit) and international tax refunds (RefundIT). In my opinion, he thinks “global, personal and painful” all at the same time. And those contribute to the market opportunity,

One of the best markets is anything with government frameworks or regulations pushing product use.

Ironically, Market Assessment is NOT part of Tech Due Diligence, but it certainly shines through at the end of the assessment and the resulting report.

Although Market Assessment isn’t formally part of Technology Due Diligence, it undeniably emerges as a crucial factor in the final assessment and report. Understanding this interplay can guide investors and company owners towards more informed and fruitful decisions in their merger and investment ventures.

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.

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