Identifying a target company for a potential M&A is an exciting time, but the process leading up to ‘closing the deal’ can be costly, complex, and time-consuming. While speed is of the essence, thorough tech due diligence is essential to ensure a successful investment.

Drawing on our extensive experience in conducting tech due diligence assessments for Private Equity customers, we have compiled six key questions to include as part of your M&A review process:

1. How future proof & robust is the technology?

It's crucial to ensure that technology investments are future-proof and technologically robust. While it's reassuring to hear that everything is in 'tip-top shape', what really matters is what you find when you look under the hood.

A comprehensive 'Technology Stack Analysis' should evaluate every aspect of your target company's technology stack, including software and hardware components, databases, and third-party services. It should also examine the design and quality of the software architecture, as well as the infrastructure and technological adaptability. This analysis should provide insights into the scalability, maintainability, and potential opportunities and risks associated with your target investment.

2. How much IP is actually in the technology?

Tech companies have numerous tools at their disposal for rapid development, including open-source technology, templates, pre-packaged environments and AI code generation. But this raises the question: how much intellectual property do you actually own in your environment?

An ‘Intellectual Property (IP)’ Assessment should evaluate the tech stack to confirm ownership, assess patent strength, and identify the competitive edge it provides. On the other side of the coin, the comprehensive review would also include scrutinising any potential legal risks associated with IP, ensuring clear and undisputed advantages.

3. Does the technology meet required compliance, data privacy and security requirements?

Understanding and evaluating the various compliance and security standards can be a minefield. It's essential to identify any gaps from the outset to mitigate future risks.

As part of a comprehensive tech due diligence process, it's essential to conduct a stringent review of compliance with relevant industry standards and regulations, such as the Privacy Act, GDPR, and PCI DSS. Thorough security audits will identify vulnerabilities and enhance cybersecurity measures - safeguarding your investment.

4. Who are the people behind the technology and what are the risks?

The strength of a technology company often lies in its people. As part of the commercial review process, you might assess factors such as corporate culture fit, talent development and staff turnover.  

From a technology perspective, a tech due diligence assessment should examine the development team's skills, methodologies and culture to evaluate the company's capacity for innovation, productivity, and employee retention, ensuring alignment with strategic growth objectives.

5. How does the technology stack up against its competitors?

The tech industry is highly competitive and saturated, making it crucial to understand the competitive landscape to gauge your potential investment's market standing and growth potential.  

The expert conducting the tech due diligence should leverage market insights and the available information about the technology. This data should enable them to assess how the technology supports the company's competitive position and provide you with the intelligence needed to stay ahead of market trends.

6. What’s the financial position of the technology?

An area of particular importance is the financial position of the technology. Diving into the true costs can be challenging, especially if there are hidden expenses lurking.

As part of the tech due diligence process, the financial health of technology operations should be assessed, including costs related to the tech stack, ongoing maintenance, and development. A knowledgeable specialist can help you understand the efficiency and ROI of the technology budget and know where to look for potential hidden costs - providing the insights needed to accurately forecast financial returns.

In summary

There are many layers to a company’s technology ecosystem. These six questions will guide you to examine the key areas that we look at when assisting Private Equity firms. While conducting tech due diligence internally has its benefits, organisations that have partnered with us have gained from our swift response, comprehensive analysis, technological proficiency and insights. A well-executed Tech Due Diligence Assessment reduces risk and provides a competitive edge by ensuring investments are not only secure but primed for future growth.