{"id":6446,"date":"2025-10-22T08:56:21","date_gmt":"2025-10-22T08:56:21","guid":{"rendered":"https:\/\/www.goodcore.co.uk\/blog\/?p=6446"},"modified":"2025-11-17T11:31:51","modified_gmt":"2025-11-17T11:31:51","slug":"how-to-conduct-technical-due-diligence-before-ma","status":"publish","type":"post","link":"https:\/\/www.goodcore.co.uk\/blog\/how-to-conduct-technical-due-diligence-before-ma\/","title":{"rendered":"How to Conduct Technical Due Diligence Before an M&A"},"content":{"rendered":"

In every merger or acquisition, the technology behind the business can make or break the deal. Financials reveal how the company has performed, but <\/span>technical due diligence before M&A<\/span> gives you a clear view of a company\u2019s technology: how scalable it is, how much technical debt it carries, and how ready it is to support future growth.\u00a0<\/span><\/p>\n

Getting this right often means bringing in an independent <\/span>software consultancy<\/b><\/a> to provide an objective perspective and ensure nothing critical is overlooked. It\u2019s one of the most critical steps in risk assessment and post-acquisition integration success.<\/span><\/p>\n

This guide breaks down how to conduct <\/span>technical due diligence in M&A<\/span>, what to review, the key steps to follow, and common red flags to watch for. Whether you\u2019re an investor, founder, or technical leader, this guide will help you approach the process with confidence and clarity.<\/span><\/p>\n

What is <\/span>technical due diligence in M&A<\/span>?<\/span><\/h2>\n

In a merger and acquisition deal, technical due diligence is the process of looking under the hood of a company\u2019s technology – its product, codebase, infrastructure, and development practices, to see how solid things really are.<\/span><\/p>\n

It\u2019s different from financial or legal due diligence. Those tell you <\/span>what<\/span><\/i> the business owns and how it\u2019s performing. Technical due diligence tells you <\/span>how<\/span><\/i> well the technology behind it is built and whether it can keep up as the business grows.<\/span><\/p>\n

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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? <\/span>Done right, <\/span>IT due diligence<\/span> helps you see the true health of the technology before you commit to buying it.<\/span><\/p>\n

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Need help with technical due diligence before a merger or acquisition?<\/h3>\n

Our expert consultants will help you evaluate code quality, architecture, scalability, and risks, so you can make informed, confident decisions.<\/span>
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When does technical due diligence actually matter?<\/span><\/h2>\n

Not every acquisition requires a thorough technical review. The r<\/span>ight technical due diligence scope<\/span> depends on how central technology is to the deal.<\/span><\/p>\n

For example, if you\u2019re 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.\u00a0<\/span>Below are key scenarios where a <\/span>pre-acquisition tech review<\/span> is essential.<\/span><\/p>\n

Proprietary software or IP is central to operations<\/b><\/h3>\n

When a company\u2019s main differentiator is its software, code, or algorithm, you\u2019re effectively buying the engine, not just the car. You need to uncover how robust, documented, and compliant that engine really is.<\/span><\/p>\n

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. <\/span>According to PwC<\/b><\/a>, technical debt is a hidden but real risk that can crater deal value unless carefully exposed in diligence.<\/span><\/p>\n

Software provides a competitive advantage<\/b><\/h3>\n

Sometimes, technology is the moat, not the business itself. Maybe the target\u2019s software, AI recommendation engine, or automated workflow gives it a lead in market, margins, or scale.<\/span><\/p>\n

In that case, you\u2019re 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.<\/span><\/p>\n

This is especially important because many \u201cnon-tech\u201d acquirers overestimate intangible benefits from tech. When integration fails, the envisioned edge neutralises quickly. <\/span>Harvard Business Review and similar studies<\/b><\/a> show that many M&As fail because synergies (often tech-driven) are overpromised and underrealised.<\/span><\/p>\n

It\u2019s a technology-heavy acquisition<\/b><\/h3>\n

When the target is a \u201ctech company\u201d, 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.<\/span><\/p>\n

In one notable M&A of this kind, <\/span>Salesforce spent $27.7 billion to acquire Slack<\/b>, not for its revenue alone, but because of Slack\u2019s deep integration capabilities, network effects, and mature messaging architecture. Because Salesforce was buying Slack\u2019s engineering capabilities and architectural DNA, the diligence needed to go deep.<\/span><\/p>\n

Merging multiple tech platforms<\/b><\/h3>\n

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?<\/span><\/p>\n

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.\u00a0<\/span><\/p>\n

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

Read also: <\/i><\/b>How to Integrate Legacy Systems and Modern Software: Step-by-Step Guide<\/i><\/b><\/a><\/p>\n

Key areas to review during technical due diligence<\/span><\/h2>\n

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When you\u2019re reviewing a company\u2019s technology, the goal isn\u2019t just to confirm that things work; it\u2019s to understand how they\u2019ve been built, how they\u2019ll 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.<\/span><\/p>\n

Architecture and infrastructure<\/b><\/h3>\n

Assess how current and supported the underlying architecture is, not just whether it \u201cworks.\u201d Legacy or end-of-life technologies don\u2019t have to be deal breakers, but they come with a price tag. As we\u2019ve discussed in more detail in our guide on <\/span>modernising legacy systems<\/b><\/a>, 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.\u00a0<\/span><\/p>\n

Code quality and technical debt<\/b><\/h3>\n

Look beyond how the code performs today. Review how it\u2019s 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\u2019s a warning sign. Tools like SonarQube or Code Climate can help quantify code health before you buy into future maintenance costs.<\/span><\/p>\n

Security and compliance<\/b><\/h3>\n

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\u2019s worth revisiting the <\/span>key principles of GDPR<\/b><\/a> to understand exactly what obligations apply and how compliance should be demonstrated.\u00a0<\/span><\/p>\n

Product and technology roadmap<\/b><\/h3>\n

Check whether the technology roadmap aligns with the company\u2019s 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.\u00a0<\/span><\/p>\n

Engineering team and processes<\/b><\/h3>\n

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.<\/span><\/p>\n

IP and licensing<\/b><\/h3>\n

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\u2019s IP portfolio is clean and transferable, so you\u2019re not inheriting someone else\u2019s liability.<\/span><\/p>\n

How to conduct technical due diligence: A step-by-step process<\/span><\/h2>\n

Even with the best tech team, due diligence can quickly turn chaotic without structure. Here\u2019s a step-by-step approach that keeps the process focused and aligned with deal priorities.<\/span><\/p>\n

Step 1: Define the scope<\/b>\u00a0<\/span><\/h3>\n

Before diving into repositories or infrastructure diagrams, start by identifying the core software and systems that underpin the company\u2019s competitive advantage, and then go deeper from there.<\/span><\/p>\n

If the company\u2019s edge lies in a proprietary SaaS platform, that\u2019s 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.<\/span><\/p>\n

Step 2: Gather documentation<\/b><\/h3>\n

Once you\u2019ve defined what needs reviewing, the next step is to obtain the relevant documentation. Good documentation lets you see how the system actually works, what\u2019s been maintained well, and where there might be hidden risk.<\/span><\/p>\n

Start by requesting access to everything that shows how the product is built, deployed, and managed. That usually includes:<\/span><\/p>\n

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  1. Code repositories<\/span><\/li>\n
  2. Architectural diagrams<\/span><\/li>\n
  3. Development and deployment pipelines\u00a0<\/span><\/li>\n
  4. Infrastructure documentation\u00a0<\/span><\/li>\n
  5. Internal audit and security reports\u00a0<\/span><\/li>\n<\/ol>\n

    A well-organised documentation package is a good sign of operational maturity. If information is missing, outdated, or scattered across teams, that\u2019s worth noting. It doesn\u2019t automatically mean poor tech, but it usually points to weak process discipline, something that can complicate integration.<\/span><\/p>\n

    Step 3: Assemble the team<\/b><\/h3>\n

    Technical due diligence isn\u2019t 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.<\/span><\/p>\n

    The question then becomes: do you rely on internal teams or bring in external help?<\/span><\/p>\n