The CTO's Guide to Technical Due Diligence

Introduction

Technical due diligence is one of the highest-stakes activities a CTO can undertake. When an enterprise is considering acquiring a technology company, investing in a technology-dependent business, or merging with a technology-driven organisation, the accuracy of the technical assessment directly influences deal valuation, integration planning, and ultimately whether the transaction creates or destroys value.

Despite its importance, technical due diligence is often conducted poorly. Time-pressured evaluations by unfamiliar assessors using generic checklists produce reports that miss critical risks and overvalue superficial signals. A well-run due diligence process requires a structured framework, experienced assessors who understand both technology and business context, and sufficient access to the target organisation’s technology team and systems.

This guide presents a comprehensive framework for CTOs and technology leaders conducting or overseeing technical due diligence. The framework is designed for acqui-hire and technology acquisition scenarios common in enterprise M&A, but its principles apply broadly to any situation requiring a rigorous assessment of a technology organisation’s health and potential.

The Architecture and Technology Stack Assessment

The architecture assessment is the foundation of technical due diligence. Its purpose is to understand whether the target’s technology platform can support the business objectives that justify the transaction. This means evaluating not just current capabilities but scalability, maintainability, and adaptability.

Begin with the system architecture overview. Request architecture diagrams, but treat them as starting points rather than ground truth; diagrams are often outdated or aspirational. Cross-reference with the actual deployed infrastructure by examining cloud provider configurations, container orchestration manifests, and deployment scripts. Understand the major system components, their interactions, data flows, and external dependencies.

Evaluate the technology stack for appropriateness and sustainability. There is no universally correct technology stack, but there are warning signs: heavy reliance on end-of-life or unsupported technologies, custom frameworks that replace well-established open-source alternatives without clear justification, and technology choices that limit the available talent pool. Conversely, a pragmatic stack built on widely adopted technologies with active communities suggests engineering maturity.

Scalability assessment should examine how the system handles increasing load. What are the current traffic volumes and growth trends? Where are the scaling bottlenecks? Has the team conducted load testing, and what were the results? A system that is approaching its scaling limits requires significant investment post-acquisition, which should be factored into the deal economics.

Security architecture deserves particular attention. Examine authentication and authorisation mechanisms, data encryption (at rest and in transit), secrets management, vulnerability scanning practices, and the history of security incidents. In an era of increasing regulatory scrutiny and breach liability, security debt in the target translates directly to risk and cost for the acquirer.

Technical debt should be assessed systematically rather than dismissed as inevitable. Some technical debt is strategic and well-managed, taken on deliberately with a clear repayment plan. Other technical debt is accidental and unmanaged, the accumulated consequence of shortcuts taken under pressure without documentation or plan for remediation. The distinction matters enormously for post-acquisition planning.

Code Quality and Engineering Practices Assessment

While architecture assessment evaluates the system at a macro level, code quality assessment examines the micro level: how well the software is actually built and maintained.

Code review practices are a reliable indicator of engineering culture. Examine the code review process: are all changes reviewed before merging? Is review thoroughness consistent? Do reviews catch substantive issues or merely rubber-stamp changes? The code review history, available in version control, provides concrete evidence. Organisations with disciplined review practices consistently produce higher-quality software.

Test coverage and testing practices reveal the organisation’s investment in code quality. Examine not just coverage percentages, which can be misleading, but the types of tests (unit, integration, end-to-end), the quality and maintainability of the test code, and the reliability of the test suite. A high-coverage test suite that is regularly green provides genuine safety for future changes. A flaky or poorly maintained test suite provides false confidence.

CI/CD pipeline maturity indicates how effectively the team delivers software. Examine the pipeline from code commit to production deployment: how automated is it? How long does it take? How often does it fail for reasons unrelated to the code change? What is the deployment frequency? A mature CI/CD pipeline enables rapid, reliable delivery. An immature pipeline constrains velocity and increases risk.

Documentation quality, both system documentation and code documentation, affects the cost and risk of post-acquisition integration and knowledge transfer. Sparse documentation increases dependency on the current team and raises the risk of knowledge loss if key personnel depart.

Dependency management deserves specific attention. Examine the currency of third-party dependencies, the process for tracking and applying security updates, and the exposure to licensing risks. Outdated dependencies with known vulnerabilities represent both security risk and remediation cost.

Team and Organisational Assessment

Technology is built by people, and the team assessment is at least as important as the code assessment. In many acquisition scenarios, particularly acqui-hires, the team is the primary asset being acquired.

Evaluate the team’s composition and capability. What is the distribution of seniority and experience? Are critical architectural and domain knowledge concentrated in a small number of individuals or distributed broadly? What is the team’s capacity for the work ahead, not just the current workload but the integration and scaling demands that will follow the acquisition?

Assess the organisational structure and its effectiveness. How are teams organised? How do they coordinate? How are technical decisions made? Is there an architecture function, and how does it operate? The answers reveal whether the organisation can scale and integrate effectively or whether structural dysfunction will impede post-acquisition progress.

Retention risk is a critical factor. Review attrition data for the past two years and assess the current team’s flight risk. Key person dependency, the concentration of critical knowledge or capability in individuals who might leave, represents one of the highest risks in technology acquisitions. Identify key personnel and assess their commitment, ideally through direct conversation.

Engineering culture is revealed through practices more than statements. How does the team handle incidents? How are technical decisions documented? How is technical debt managed? What is the relationship between engineering and product management? These cultural indicators predict how well the team will integrate into the acquirer’s engineering organisation.

Risk Identification and Valuation Impact

The ultimate purpose of technical due diligence is to identify risks and opportunities that affect the transaction’s value and inform the integration plan.

Risks should be categorised and quantified where possible. Critical risks, those that could prevent the technology from functioning as expected or expose the acquirer to significant liability, should be escalated as potential deal-breakers. Significant risks, those requiring substantial investment to remediate but not threatening the fundamental value proposition, should be quantified and incorporated into the deal valuation. Minor risks and improvement opportunities should be documented for post-acquisition planning.

Common critical risks include undisclosed security vulnerabilities, intellectual property encumbrances (such as open-source license compliance issues or third-party IP dependencies), scalability limitations that undermine the business case, and key person dependencies with high flight risk.

Valuation impact should be expressed in terms the deal team can use. Rather than abstract technology risk ratings, quantify the cost and timeline of necessary remediation work, the infrastructure investment required for scaling, the personnel investment needed to address key person risk, and the ongoing operational costs that may not be apparent from the target’s current financial statements.

The due diligence report should clearly separate findings (what was observed), assessments (the evaluator’s interpretation of the findings), and recommendations (suggested actions for the deal team). This separation allows the deal team to understand and appropriately weight the technical input alongside commercial, financial, and legal due diligence.

The Due Diligence Process

The quality of due diligence depends as much on process as on content. Several process considerations are essential.

Access is fundamental. Insist on direct access to the technology team, codebase, infrastructure, and operational data. “Data room only” diligence, limited to documents the target chooses to share, is insufficient for meaningful technical assessment. At minimum, require read access to the primary code repositories, architecture review sessions with the technical leadership, and one-on-one conversations with key engineers.

Time allocation should reflect the transaction’s technology dependency. For acquisitions where technology is the primary asset, allocate at least two weeks of focused assessment by experienced technical evaluators. Compressed timelines produce superficial assessments that miss critical risks.

Assessor selection matters enormously. The ideal technical due diligence team combines deep technical expertise with business context awareness and experience in the specific technology domain being assessed. Internal CTOs and senior architects often provide the best assessment, supplemented by external specialists for specific technology areas outside the internal team’s expertise.

Technical due diligence done well is one of the most valuable activities in the M&A process. It transforms technology risk from an unknown into a quantified factor that informs better decisions, better valuations, and better integration plans. The investment in rigorous assessment is repaid many times over in avoided surprises and accelerated integration.