Technology Due Diligence in M&A: The CTO's Playbook

Introduction

Mergers and acquisitions increasingly hinge on technology. Whether acquiring for technology assets, customer data, talent, or market position, understanding what you’re actually buying is essential. Yet technology due diligence is often rushed, superficial, or delegated to people without the expertise to spot issues.

The cost of inadequate due diligence appears post-close: integration failures, security incidents, talent departures, and technology that doesn’t deliver expected value. This guide provides a framework for thorough technology assessment.

Why Technology Due Diligence Matters

Value Validation

Technology often justifies acquisition premiums:

• Proprietary technology claims
• Data assets
• Platform capabilities
• Technical talent
• Customer technology dependencies

Validating these claims protects against overpaying.

Risk Identification

Hidden technology risks can destroy deal value:

• Security vulnerabilities
• Technical debt requiring massive investment
• Scalability limitations
• Compliance gaps
• Key person dependencies

Better to discover these before closing.

Integration Planning

Understanding technology landscape enables:

• Realistic integration timelines
• Accurate cost estimates
• Retention strategies for key talent
• Architecture decisions
• Synergy identification

Due diligence feeds directly into integration success.

Due Diligence Framework

Scope Definition

Not all acquisitions require the same depth:

Factors Affecting Scope

• Technology centrality to acquisition thesis
• Deal size and risk tolerance
• Integration approach (standalone vs merge)
• Timeline constraints
• Access to information

Common Scope Levels

• Light: High-level architecture review, team assessment
• Standard: Technical deep dive, security review, IP assessment
• Comprehensive: Full code review, penetration testing, detailed technical debt analysis

Match scope to risk and value at stake.

Information Gathering

Documentation Request

• System architecture diagrams
• Technology stack documentation
• Security policies and assessments
• Incident history
• Organisational charts
• Vendor contracts
• IP assignments and agreements

Technical Access

• Code repository access (with appropriate protections)
• Infrastructure review
• System demonstrations
• Technical team interviews

Data Room Organisation

• Structured request lists
• Clear naming conventions
• Version control on documents
• Secure access management

Assessment Areas

Architecture and Systems

Current State

• System landscape and integrations
• Technology stack choices
• Infrastructure (cloud, on-premises, hybrid)
• Scalability architecture
• Disaster recovery capabilities

Key Questions

• Can the architecture support growth projections?
• Are there single points of failure?
• How modern or dated is the technology?
• What are the integration points with customers?
• How dependent on specific platforms or vendors?

Red Flags

• Undocumented architecture
• Heavy reliance on end-of-life technology
• Scaling approaches that don’t match growth plans
• Critical systems with no redundancy

Technical Debt

Assessment Approach

• Code quality metrics (if code access available)
• Team estimates and perceptions
• Maintenance effort analysis
• Known issues and workarounds

Categories

• Architecture debt: Fundamental design limitations
• Code debt: Quality issues in implementation
• Infrastructure debt: Outdated or misconfigured systems
• Documentation debt: Missing or outdated documentation
• Test debt: Inadequate automated testing

Quantification

Estimate remediation costs:

• Engineering effort required
• Timeline for addressing
• Risk of not addressing
• Impact on integration

Security Posture

Policy and Process

• Security policies and standards
• Incident response procedures
• Security training programs
• Third-party security assessments

Technical Controls

• Identity and access management
• Data protection measures
• Network security
• Application security
• Endpoint security

Vulnerability Assessment

• Known vulnerabilities
• Penetration test results
• Security tool outputs
• Patch management status

Compliance

• Regulatory requirements
• Certification status
• Audit findings
• Remediation timelines

History

• Previous security incidents
• Data breaches
• Regulatory actions
• Customer security concerns

Data Assets

Data Inventory

• What data exists?
• Where is it stored?
• How is it protected?
• What are the retention policies?

Data Quality

• Accuracy and completeness
• Consistency across systems
• Timeliness of updates
• Master data management

Data Rights

• Ownership and usage rights
• Customer consent status
• Regulatory constraints
• Transfer implications

Data Value

• Uniqueness and defensibility
• Integration with products
• Monetisation potential
• Compliance with emerging regulations

Intellectual Property

IP Inventory

• Patents and applications
• Trade secrets
• Copyrights
• Trademarks

Code Ownership

• Original development vs third-party
• Open source usage and compliance
• Contractor and employee IP assignments
• License obligations

Third-Party Dependencies

• Licensed technology
• Open source components
• Vendor lock-in
• License transferability

Risk Assessment

• IP infringement claims
• License compliance issues
• Third-party ownership claims
• Assignment gaps

Team and Capabilities

Team Structure

• Organisation and reporting
• Roles and responsibilities
• Team sizes and allocation
• Geographic distribution

Talent Assessment

• Key person identification
• Skill distribution
• Retention risk
• Market competitiveness

Culture and Process

• Development methodology
• Quality practices
• Collaboration patterns
• Decision-making processes

Knowledge Concentration

• Bus factor analysis
• Documentation adequacy
• Cross-training
• Succession planning

Vendor and Partner Relationships

Critical Vendors

• Technology platform dependencies
• SaaS and cloud providers
• Outsourcing relationships
• Maintenance and support contracts

Contract Review

• Terms and conditions
• Change of control provisions
• Termination rights
• Price escalation

Relationship Quality

• Vendor performance
• Dispute history
• Strategic importance
• Alternative availability

Operational Excellence

Development Operations

• Release frequency
• Deployment processes
• Incident management
• Change management

System Reliability

• Uptime history
• Incident frequency
• Recovery time
• Monitoring and alerting

Support Operations

• Support model
• SLA performance
• Customer satisfaction
• Escalation processes

Interview Strategies

Who to Interview

Leadership

• CTO/VP Engineering
• Security leadership
• Infrastructure leadership
• Product leadership

Individual Contributors

• Senior architects
• Long-tenured engineers
• Recent hires (fresh perspective)
• DevOps/SRE staff

What to Ask

Architecture and History

• Why were key technology decisions made?
• What would you do differently?
• What’s the biggest technical challenge?
• How has the architecture evolved?

Reality Check

• What keeps you up at night?
• Where do you spend most maintenance effort?
• What’s the hardest thing to change?
• What documentation is missing?

Culture and Team

• How are technical decisions made?
• How is technical debt prioritised?
• What’s the relationship with business stakeholders?
• Why do people stay? Why do they leave?

Reading Between Lines

Pay attention to:

• Hesitation or evasion on certain topics
• Consistency (or lack thereof) across interviews
• Enthusiasm vs obligation
• Specific examples vs generalities
• Body language and tone

Quantifying Findings

Risk Scoring

Develop consistent scoring:

Severity

• Critical: Deal-breaker or massive value impact
• High: Significant investment or risk
• Medium: Notable but manageable
• Low: Minor concern

Likelihood

• Already occurring
• Highly probable
• Possible
• Unlikely

Cost Estimation

For each finding, estimate:

• Remediation cost
• Timeline to address
• Resources required
• Impact if not addressed

Value Impact

Connect findings to deal value:

• Synergy implications
• Integration cost adjustments
• Risk premium considerations
• Earnout structure implications

Reporting and Recommendations

Executive Summary

For deal team and executives:

• Overall assessment (go/no-go/conditional)
• Key findings
• Major risks
• Estimated cost impacts
• Critical questions requiring resolution

Detailed Findings

For integration planning:

• Finding-by-finding documentation
• Evidence and sources
• Risk scoring
• Recommended actions
• Timeline considerations

Deal Implications

• Valuation adjustments
• Representation and warranty requirements
• Escrow considerations
• Earnout structure
• Integration timeline

Post-Close Validation

First 100 Days

• Validate critical assumptions
• Deeper technical access
• Full security assessment
• Team engagement

Surprises to Expect

• Undiscovered technical debt
• Documentation gaps
• Talent retention challenges
• Integration complexity

Adjustment Process

• Escalation for material surprises
• Integration plan updates
• Earnout consideration (if applicable)
• Communication to stakeholders

Conclusion

Technology due diligence is too important to delegate without oversight. As CTOs, we must be directly involved in assessing technology assets, understanding risks, and validating value.

The investment in thorough due diligence pays dividends throughout integration and beyond. Surprises discovered post-close are far more expensive than effort invested pre-close.

Build a repeatable framework. Involve the right expertise. Ask hard questions. Document findings thoroughly. And be willing to walk away when technology reality doesn’t match acquisition thesis.