Buying or selling a business? Three reasons you need a Technology Due Diligence

All businesses have elements of technology. This ranges from cutting-edge fintech, insure-tech or health-tech firms with large in-house development teams creating beautiful software, all the way to “low” tech firms such as recycling or car washes where the tech might be more focused on end-to-end business process optimization. Either way, if you are selling or buying a business – even one that isn’t obviously tech-heavy, here are three reasons why a Technology Due Diligence (TDD) is crucial.

Reason 1

Buyers: Know what you are buying, or you will be explaining why this investment lost money to your investment committee in 4 years' time.

You wouldn’t buy a factory without having someone come in and look at whether the equipment is actually functional, would you? Similarly, you need to know that the software development you just bought is functional, up-to-date and well-architected. We see plenty of situations where a seller wants to talk about their up-to-date microservices-based platform hosted on the cloud, whilst neglecting to talk about the 20-year-old monolith with 2 million lines of code that 80% of the clients actually sit on. Sure, the transition will definitely be completed on time next quarter.

Reason 2

Sellers: You don’t want to give them an excuse to price you down.

We once worked sell-side with a company that had 70 or so products, where none of the senior management team spoke about the same product with the same terminology. It was mildly confusing. Good thing their tech was actually very good. All they needed to do was make sure management were all presenting the same message in the same language.

Often the tech is good, but there’s usually a bit of legacy that hasn’t been cleaned up, or a rogue server somewhere that isn’t on cloud. And importantly – in the context of the story of how your company has grown – your technology situation usually makes sense. To you. But it’s important that your narrative is convincing to the buyer, and that you’re up-front about any flaws. They’ll ask about them anyway, so you might as well get ahead of the story. And if something really is bad – take 9-12 months to fix it. Better to fix it before a process than during.

Reason 3

Buyers: Press the price on your insurance

A good technology due diligence will help mitigate pesky questions from your deal insurers, and help keep the costs low. A good technology due diligence provider will also likely be able to help you sketch out a plan for mitigating the highest risks found, which gives you an even better position to talk to insurers.

BearingPoint Capital have done technology due diligence across a range of industries and countries since 2015. Talk to us if you would like to know more about this service.