How to Conduct Technical Due Diligence Before an M&A

In every merger or acquisition, the technology behind the business can make or break the deal. Financials reveal how the company has performed, but technical due diligence before M&A gives you a clear view of a company’s technology: how scalable it is, how much technical debt it carries, and how ready it is to support future growth. 

Getting this right often means bringing in an independent software consultancy to provide an objective perspective and ensure nothing critical is overlooked. It’s one of the most critical steps in risk assessment and post-acquisition integration success.

This guide breaks down how to conduct technical due diligence in M&A, what to review, the key steps to follow, and common red flags to watch for. Whether you’re an investor, founder, or technical leader, this guide will help you approach the process with confidence and clarity.

What is technical due diligence in M&A?

In a merger and acquisition deal, technical due diligence is the process of looking under the hood of a company’s technology – its product, codebase, infrastructure, and development practices, to see how solid things really are.

It’s different from financial or legal due diligence. Those tell you what the business owns and how it’s performing. Technical due diligence tells you how well the technology behind it is built and whether it can keep up as the business grows.

The goal is simple: to understand the scalability, maintainability, and risk profile of the software. Is it stable enough to support more users? Is the code clean and easy to maintain? Are there security, licensing, or dependency risks that could cause problems later? Done right, IT due diligence helps you see the true health of the technology before you commit to buying it.

When does technical due diligence actually matter?

Not every acquisition requires a thorough technical review. The right technical due diligence scope depends on how central technology is to the deal.

For example, if you’re buying a service business with off-the-shelf tools and minimal tech, a light review might be enough. But in some deals, skipping technical due diligence can be a costly mistake. Below are key scenarios where a pre-acquisition tech review is essential.

Proprietary software or IP is central to operations

When a company’s main differentiator is its software, code, or algorithm, you’re effectively buying the engine, not just the car. You need to uncover how robust, documented, and compliant that engine really is.

If you skip validating whether the target truly owns its IP, whether licensing obligations are clear, or whether critical modules are undocumented or unsupported, you could inherit liabilities that wipe out your forecasted returns. According to PwC, technical debt is a hidden but real risk that can crater deal value unless carefully exposed in diligence.

Software provides a competitive advantage

Sometimes, technology is the moat, not the business itself. Maybe the target’s software, AI recommendation engine, or automated workflow gives it a lead in market, margins, or scale.

In that case, you’re not just buying what the company is today, but what it can become. That means you need to test whether the advantage is fragile. Can it scale? Is it maintainable? Could a rival replicate it quickly? Diligence here must test constraints: load tests, failure modes, architectural weak spots, and future roadmap feasibility.

This is especially important because many “non-tech” acquirers overestimate intangible benefits from tech. When integration fails, the envisioned edge neutralises quickly. Harvard Business Review and similar studies show that many M&As fail because synergies (often tech-driven) are overpromised and underrealised.

It’s a technology-heavy acquisition

When the target is a “tech company”, a SaaS firm, platform provider, infrastructure tool, or AI startup, nearly all the value lives in the tech stack, engineering talent, and innovation roadmap rather than legacy contracts or physical assets. In such transactions, technical due diligence becomes the centrepiece of the deal.

In one notable M&A of this kind, Salesforce spent $27.7 billion to acquire Slack, not for its revenue alone, but because of Slack’s deep integration capabilities, network effects, and mature messaging architecture. Because Salesforce was buying Slack’s engineering capabilities and architectural DNA, the diligence needed to go deep.

Merging multiple tech platforms

Many acquirers already own technology assets, systems, tools, APIs, and platforms that must be unified with what they are buying. The question becomes: how messy will the integration be?

When disparate platforms must integrate, migrate data, or co-exist, the technical work sometimes dwarfs the rest of the integration. Even the best teams fail when they treat integration as a post-deal afterthought. 

In fact, 59% of companies in a PwC M&A survey reported spending 6% or more of deal value on integration and the more successful ones began planning integration during diligence rather than afterwards.

Read also: How to Integrate Legacy Systems and Modern Software: Step-by-Step Guide

Key areas to review during technical due diligence

When you’re reviewing a company’s technology, the goal isn’t just to confirm that things work; it’s to understand how they’ve been built, how they’ll scale, and what risks or investments lie ahead. A thorough review of the following key areas helps you see where the strengths are and where future costs may surface.

Architecture and infrastructure

Assess how current and supported the underlying architecture is, not just whether it “works.” Legacy or end-of-life technologies don’t have to be deal breakers, but they come with a price tag. As we’ve discussed in more detail in our guide on modernising legacy systems, older platforms often carry hidden costs around maintenance, scalability, and integration. Factor the cost of future upgrades, vendor support, and modernisation into your valuation and integration plan. 

Code quality and technical debt

Look beyond how the code performs today. Review how it’s written, structured, and documented. Poor documentation, inconsistent naming, or lack of testing usually point to hidden technical debt. If fixes take weeks instead of days, or if new features frequently break old ones, that’s a warning sign. Tools like SonarQube or Code Climate can help quantify code health before you buy into future maintenance costs.

Security and compliance

Security lapses can destroy deal value overnight. Make sure basic hygiene, encryption, access control, and regular patching are in place. Confirm compliance with relevant standards like GDPR, SOC 2, or HIPAA, depending on the sector. If the company operates in regions covered by data protection laws, it’s worth revisiting the key principles of GDPR to understand exactly what obligations apply and how compliance should be demonstrated. 

Product and technology roadmap

Check whether the technology roadmap aligns with the company’s growth story. A flashy product vision is only credible if the engineering team can realistically deliver it. Look for evidence of planned upgrades, scalability improvements, or innovation cycles. 

Engineering team and processes

The best tech can falter without the right people and habits. Review team structure, retention rates, and how knowledge is shared. Are they following agile practices, CI/CD pipelines, and peer reviews, or is delivery still hero-driven? A well-documented, collaborative process means the business can sustain momentum even if key people leave, something that becomes crucial during integration.

IP and licensing

Finally, confirm who actually owns what. Review IP assignments, third-party dependencies, and open-source libraries for compliance. Hidden license obligations or missing contributor agreements can delay a deal or expose you to future legal risk. Make sure the target’s IP portfolio is clean and transferable, so you’re not inheriting someone else’s liability.

How to conduct technical due diligence: A step-by-step process

Even with the best tech team, due diligence can quickly turn chaotic without structure. Here’s a step-by-step approach that keeps the process focused and aligned with deal priorities.

Step 1: Define the scope 

Before diving into repositories or infrastructure diagrams, start by identifying the core software and systems that underpin the company’s competitive advantage, and then go deeper from there.

If the company’s edge lies in a proprietary SaaS platform, that’s where your review starts. If its value comes from a recommendation engine, automation tool, or data pipeline, those become your focal points. Everything else, internal tools, one-off integrations, legacy utilities, etc, can be reviewed at a lighter level.

Step 2: Gather documentation

Once you’ve defined what needs reviewing, the next step is to obtain the relevant documentation. Good documentation lets you see how the system actually works, what’s been maintained well, and where there might be hidden risk.

Start by requesting access to everything that shows how the product is built, deployed, and managed. That usually includes:

1. Code repositories
2. Architectural diagrams
3. Development and deployment pipelines 
4. Infrastructure documentation 
5. Internal audit and security reports 

A well-organised documentation package is a good sign of operational maturity. If information is missing, outdated, or scattered across teams, that’s worth noting. It doesn’t automatically mean poor tech, but it usually points to weak process discipline, something that can complicate integration.

Step 3: Assemble the team

Technical due diligence isn’t something you hand to junior developers. It needs architect-level talent or senior engineering leadership – people who can see the bigger picture, not just lines of code.

The question then becomes: do you rely on internal teams or bring in external help?

• Internal approach: You can set up a dedicated team to run the review, but it’s rarely quick. A proper audit can stretch 4-6 months, and meanwhile, your best people are pulled away from business-as-usual work. That often creates bottlenecks.
• External approach: Bringing in consultants or specialist partners keeps the process unbiased and efficient. They can ask tough questions without the defensiveness that sometimes comes when internal choices are scrutinised. It also allows your in-house team to stay focused on delivery.

In some cases, pairing external experts with your existing engineers through a staff augmentation model can strike the right balance, giving you flexibility, speed, and access to specialised skills without overloading your core team.

Step 4: Perform technical assessment

Once the right people are in place and the documentation’s been gathered, it’s time to dig in. Here’s what to focus on:

Review the software architecture

Start by looking at how the system is structured, not just what it does. A good architecture is modular, well-documented, and designed for scale. Ask questions like:

• Can components be updated or replaced without breaking everything else?
• Is the system built using current frameworks and supported technologies?
• How does it handle peak loads and failure recovery?

Legacy architecture doesn’t automatically mean trouble, but it does mean cost. If the platform relies on outdated frameworks or self-managed infrastructure, you’ll likely face modernisation work, and that needs to be factored into your valuation and post-acquisition plan.

Evaluate the codebase

This is where the engineering depth really shows. You’re looking for code that’s readable, consistent, and tested. Random naming, poor documentation, or duplicated logic are signs of shortcuts that will slow future development.

Automated code scanning tools like SonarQube, Code Climate, or Snyk can help spot security issues, bugs, and maintainability risks fast.

Also, check the overall structure. Is it easy for new developers to onboard? If only one or two people understand large sections of the codebase, that’s a red flag for scalability and resilience.

Dependency analysis

Modern software doesn’t exist in isolation; it runs on countless external libraries, frameworks, and APIs. Dependency analysis helps you see how reliant the system is on third-party tools and whether those dependencies are current and supported. Watch for:

• Outdated or end-of-life dependencies that may introduce security vulnerabilities.
• Open-source components with restrictive or unclear licenses.
• External APIs that, if deprecated or changed, could break core functionality.

A dependency map gives you a clear picture of how “portable” or fragile the system really is, which is critical during integration or future scaling.

Administration and IT environment review

Finally, assess how the technology is managed day-to-day. This includes hosting, deployment, monitoring, backups, and user management. Look at:

• Cloud setup: How environments are structured (dev, test, prod), and whether there’s clear separation.
• Security hygiene: MFA, access controls, and patching practices.
• Monitoring and recovery: Are there automated alerts, backup schedules, and recovery plans in place?

An IT environment that’s clean, documented, and automated is a strong indicator of a mature operation. 

Step 5: Interview key stakeholders

Once you’ve reviewed the systems and code, it’s time to talk to the people who live with them every day. Stakeholder interviews give you the context that documentation can’t,  how things actually run, what’s working, and where the pain points are. 

Speak with a mix of roles: the CTO for strategic direction, product managers for customer and roadmap alignment, and senior engineers or ops leads for a reality check on how stable, scalable, and maintainable the system really is.

If leadership and engineers describe the tech’s health very differently, or if everyone avoids talking about documentation or testing, that’s a red flag. The goal is to validate what you’ve seen in the review and get a feel for how strong and honest the team’s engineering culture really is.

Step 6: Prepare the TDD report

Once you’ve completed your reviews and stakeholder interviews, the next step is to pull everything together into a report. A good due diligence report should be concise, factual, and written for both technical and non-technical readers. Here’s how to structure it:

• Executive summary: A one-page overview highlighting the overall tech health, major strengths, and key risks.
• Architecture and infrastructure review: Summarise findings on scalability, performance, and modernisation needs.
• Code quality and security: Outline major issues, such as outdated dependencies, vulnerabilities, or technical debt.
• Team and process assessment: Capture observations on engineering capability, documentation habits, and delivery maturity.
• Integration readiness: Note any challenges expected when merging systems or migrating data.
• Recommendations and next steps: End with practical actions: what to address immediately, what to monitor post-acquisition, and what long-term investments are needed.

Step 7: Evaluate risks and costs 

This step is about connecting the dots: identifying which issues matter, estimating what they’ll cost to fix, and understanding how they affect valuation or integration plans.

Start by separating critical risks from manageable ones. Critical risks are the things that could materially impact operations, like an unsupported tech stack, major security vulnerabilities, or missing IP ownership. Manageable risks are things you can live with short-term, say, inconsistent documentation or outdated CI/CD pipelines, as long as you’ve budgeted for cleanup.

Once you’ve categorised the issues, attach costs and timelines to each. For example, migrating from legacy infrastructure might take six months and a six-figure spend. These estimates help shape your negotiation strategy and post-deal roadmap. 

Common red flags found during technical due diligence

Every acquisition has issues; the key is spotting which ones can be fixed and which ones will drain value. The following are some of the most common red flags uncovered during technical due diligence.

Outdated tech stacks or unsupported frameworks

One of the biggest red flags in any tech review is discovering that the company runs on a tech stack that’s well past its prime. You’ll often see applications still running on legacy Java versions, outdated PHP frameworks, or unsupported databases. It might all “work,” but that stability is deceptive; it’s the kind that freezes progress.

When Atlassian acquired Trello in 2017, a big part of the integration planning centred on modernising Trello’s architecture so it could scale within Atlassian’s ecosystem. That kind of modernisation is manageable when planned; it’s painful when discovered late. 

Outdated frameworks also mean rising costs: limited developer availability, higher security risk, and lack of vendor support. The risk isn’t just technical; it’s operational because every future upgrade becomes more complex and costly.

High technical debt and lack of documentation

Another recurring theme is excessive technical debt; systems that work, but only because developers have been patching and firefighting for years. This often goes hand in hand with poor documentation or inconsistent code comments. 

Research by Stripe and Harris Poll found that engineers spend up to 42% of their time dealing with technical debt and maintenance rather than building new features, a massive productivity sink that directly affects valuation. 

Startups especially fall into this trap: they prioritise speed over structure, which works until an acquisition forces everything into the open. During diligence, you want to see not just the debt itself, but how aware the team is of it and whether they have a plan to pay it down.

Weak cybersecurity practices

Security lapses are deal-killers, plain and simple. A company can have the best product in the world, but if its data is exposed or compliance is shaky, you’re inheriting liability. 

In diligence, even small gaps matter. Missing penetration test reports, shared admin credentials, or unencrypted customer data are serious warning signs. According to IBM’s Cost of a Data Breach Report, the average breach costs $4.88 million globally and that doesn’t include reputational fallout. Weak controls can turn what looked like a strong acquisition into a long-term risk management exercise.

Poor scalability and performance issues

Scalability issues are another classic trap. It’s common for systems that perform well with a few thousand users to collapse when traffic doubles or triples. The problem isn’t always the code; sometimes it’s the architecture, database design, or deployment setup.

Take Twitter’s early “fail whale” era: the platform couldn’t handle its own growth because its backend wasn’t built to scale linearly. Many M&A targets face similar realities; they’ve reached their limits. Without solid load testing, capacity planning, and infrastructure automation, the acquiring company may find itself funding an unplanned rewrite just to keep up with growth. 

Overdependence on key personnel

Finally, one of the most underestimated red flags: overreliance on a handful of people. If there’s a single developer who “knows everything,” that’s not strength, it’s fragility. Deals have fallen apart when key engineers or CTOs left mid-integration, taking years of unwritten knowledge with them.

That’s why part of the diligence process should always include a review of team structure, documentation, and succession planning. A healthy team should be able to operate smoothly even if a few key people step away.

Best tools and software for technical due diligence

Even the most experienced diligence team needs the right tools to move fast and stay objective. The good news: there’s now a wide range of tech due diligence tools and automation frameworks that can make the process faster and data-driven. Here’s a list of some of the most effective tools used across the industry:

Final thoughts

At its core, technical due diligence is about aligning technology with strategy. It ensures the systems you’re buying can actually support future growth, saving you money, time, and the frustration that comes with discovering problems too late.

It’s also worth remembering that you don’t have to do it alone. Working with an experienced external partner can bring objectivity, structure, and speed to what can otherwise be a complex and draining process. A consultancy team can help you ask the right questions, validate assumptions, and spot risks before they become roadblocks.

If you’re planning an acquisition or simply want to assess the technical health of your own platform, our software consultancy services can guide you through a thorough, unbiased review that sets you up for long-term success.

FAQs

What is the purpose of tech due diligence during an acquisition?

The purpose of technical due diligence is to assess the health, scalability, and risks of a company’s technology before completing an acquisition. It helps buyers understand how the product is built, whether it can support future growth, and what costs or challenges may arise post-deal. Essentially, it ensures that the technology aligns with the business’s strategic goals and that there are no hidden issues that could impact the investment.

When to conduct technical due diligence?

Technical due diligence typically takes place after initial financial and legal reviews, but before finalising the deal or signing binding agreements. Conducting it early enough in the M&A process helps identify red flags or integration challenges while there’s still time to adjust valuation, renegotiate terms, or plan remediation.

What’s the difference: technical due diligence vs financial due diligence?

Financial due diligence focuses on the company’s economic health: revenue, cash flow, liabilities, and overall valuation. Technical due diligence, on the other hand, examines the technology behind that business value, the systems, codebase, infrastructure, and engineering processes that make the product work. 

What is the role of CTO in M&A technical due diligence?

The CTO plays a central role in M&A technical due diligence by guiding the process, providing technical insight, and ensuring transparency. They act as the bridge between the engineering team and the acquiring party, helping explain architectural choices, risks, long-term plans and demonstrating how the tech can scale to support the combined company’s goals.