The acquisition looked perfect on paper. Strong revenue growth, loyal customers, proprietary technology that would accelerate your product roadmap by two years. The deal closed. Then reality arrived.

The "proprietary platform" turned out to be a fragile collection of legacy code held together by the heroic efforts of three engineers who promptly left after the acquisition. The customer data you thought you were buying was scattered across systems with no clear ownership. The infrastructure costs were triple what the seller represented because they'd deferred every possible upgrade.

This scenario plays out repeatedly in technology acquisitions. Buyers focus on financial due diligence and legal review while treating technology assessment as an afterthought—if they conduct one at all.

Technology due diligence isn't about finding reasons to kill deals. It's about understanding what you're actually buying so you can price accurately, plan integration realistically, and avoid the surprises that turn promising acquisitions into expensive lessons.

Why Technology Due Diligence Gets Overlooked

Traditional M&A due diligence focuses on financials, legal matters, and commercial relationships. These disciplines have mature methodologies, experienced practitioners, and clear deliverables.

Technology assessment often falls between responsibilities. The acquiring company's IT team may lack M&A experience. External advisors may lack technical depth. Deal teams operate under time pressure and focus on areas they understand well.

The result is cursory technology review—checking boxes rather than genuinely understanding what the target's technology can and cannot do.

This oversight becomes expensive. Integration costs exceed projections. Promised synergies fail to materialize. Key technical talent departs. Security vulnerabilities emerge. Technical debt consumes resources that should fuel growth.

What Comprehensive Technology Due Diligence Covers

Effective technology due diligence examines multiple dimensions, each contributing to an accurate picture of what the technology is worth and what it will cost to operate and evolve.

Architecture and Technical Debt Assessment

How is the technology actually built? Not how the slides describe it—how it actually works. Modern, maintainable architecture versus legacy systems with accumulated technical debt represent dramatically different acquisition values.

Assess the codebase quality, documentation completeness, testing coverage, and architectural patterns. Identify components that will require immediate investment versus those that can evolve gradually. Quantify the technical debt that accumulated under the seller's ownership but will become the buyer's problem.

Infrastructure and Operations Review

What does it cost to run this technology, and what will it cost going forward? Many targets optimize for growth metrics while deferring infrastructure investments that will eventually become necessary.

Examine hosting arrangements, scalability constraints, operational procedures, and monitoring capabilities. Identify deferred maintenance, pending upgrades, and capacity limitations. Understand the true cost of operations, not just current spending.

Security and Compliance Posture

What security vulnerabilities exist, and what compliance obligations apply? Security issues discovered post-acquisition become the buyer's liability. Compliance gaps can result in regulatory action, customer loss, or integration delays.

Assess security controls, vulnerability management practices, access controls, and data protection measures. Review compliance certifications, audit findings, and regulatory correspondence. Understand what remediation will be required and what it will cost.

Team and Knowledge Assessment

Technology doesn't exist independently of the people who build and maintain it. Key person dependencies, knowledge concentration, and retention risk directly impact acquisition value.

Identify critical personnel and assess retention likelihood. Evaluate documentation adequacy—can someone else maintain this system if key people leave? Understand the team's capabilities relative to the technology's ongoing needs.

Red Flags That Demand Deeper Investigation

Certain findings should trigger additional scrutiny. They don't necessarily indicate deal-breakers, but they often reveal issues that affect valuation or integration planning.

Unusual technology choices, documentation gaps, deferred security investment, concentration in key systems or people, and incomplete third-party agreements all warrant closer examination. When a target uses uncommon technology stacks or custom-built solutions for common problems, understand why. Sometimes there are good reasons. Often, these choices reflect historical accidents or departed founders' preferences.

Quantifying What You Find

Due diligence findings should translate into numbers that inform deal economics. Abstract risk assessments don't help negotiators or integration planners.

Estimate integration costs based on architecture assessment and integration requirements. Budget for technical debt remediation to bring the technology to acceptable standards. Project operational costs under the buyer's ownership with the buyer's standards. Assess how technical findings affect what the technology is worth.

Using Findings Effectively

Due diligence findings serve multiple purposes beyond simple go/no-go decisions. Documented technical issues support price adjustments in negotiations. Findings can inform specific representations the seller should make about technology condition, security posture, and IP ownership. Understanding the technology's actual state enables realistic integration planning.

Building Technology Due Diligence Capability

Organizations that acquire technology companies regularly should build repeatable due diligence capabilities rather than improvising for each transaction. Develop standardized assessment frameworks that ensure consistent coverage across deals. Maintain relationships with technical advisors who can conduct or support due diligence on short notice. Ensure technology due diligence integrates with the overall deal process and timeline.

Get Expert Due Diligence Support

ShankerTech's Fractional CIO/CTO Advisory practice provides technology due diligence services for acquisitions, helping buyers understand what they're purchasing and plan successful integrations.

Schedule a free consultation to discuss how technology due diligence can protect your next acquisition.