Key Elements of Technical Due Diligence in Mergers and Acquisitions


Liberty Advisor Group

Technical due diligence is not just a “Check-the-Box” exercise. Doing technological due diligence is now more critical than ever when managing mergers and acquisitions (M&A).

Technology: it’s more than just a buzzword, especially as an increasing number of businesses rely on it to take care of their daily operations.

Technology is critical for data control and collection, security, and a host of functions across many organizations. As an organization prepares for a merger or acquisition, technical due diligence has become increasingly critical.

Here we’ll go over what technical due diligence really means, key considerations, and why it’s so important in every M&A activity.

What Is Technical Due Diligence?

Technical due diligence (or TDD) is an audit of the technical aspects and functionality of a product or company before an M&A begins. Most often initiated by the acquiring company or investor, TDD takes into account all products, software, roadmaps, and other important aspects of a company’s technical viability. In this sense, TDD helps gain a holistic view of the company’s true worth and whether they are able to deliver on promises made before M&A begins.

Expanding Value Through Technical Due Diligence

Private equity has many options available to improve a company’s operations. The first play, however, should almost always be on the technology side. This is where most companies can expand enterprise value by 10% to 15% with quick wins. In fact, as many as 95% of companies can quickly improve their overall functionality and profits–not to mention their value–just by using the right platforms and integrations across the company.

During mergers and acquisitions, this awareness is critical for two reasons. First, it’s important to know what platforms, integrations, and technology solutions the business is already using. Since they can have a huge impact on the business’s overall value and functionality. Second, if the business isn’t functioning at peak efficiency, updating that technology could be a critical first move after the deal.

Why Technical Due Diligence Is so Critical

Over the past several years, technology has become more central than ever to performance and competitive advantage, not just in tech companies, but in almost every company. Most companies are highly reliant on technology for peak performance within their industries. Conducting  technology due diligence is now more critical than ever when managing mergers and acquisitions and beyond, both within the tech space and outside of it.

Technical due diligence highlights technology gaps.

Often, organizations have technology gaps that they may not have identified. And during the merger or acquisition process, it’s critical to identify those gaps and help bring the technology up to level. For example, many companies have outdated applications that are no longer supported. This could make it difficult for the organization to weather a glitch or problem with that application. Others may have an outdated infrastructure that cannot continue to support the high level of data that moves through that system on a daily basis.

Technical due diligence can help identify and call out potential risks.

A lack of security is an immense problem for many organizations. Cybersecurity has become an increasingly important investment. With platforms like Corelight landing as much as $75 million to aid in cybersecurity platforms and infrastructure, many organizations have seen cyber threats emerge like never before. Compliance gaps can cost companies a great deal, especially if they suffer a breach. Furthermore, disaster recovery has become more critical than ever for many companies.

With cyber threats on the rise–and the potential for a natural disaster to quickly take down a company’s physical infrastructure–it’s critical for organizations to have a solid cybersecurity system in place. Technical due diligence can identify those gaps and ensure that the company isn’t getting into more trouble than it anticipated with the new merger or acquisition when those networks eventually combine. A security threat poses a substantial problem for the newly acquired company. It may also pose a problem for the parent company, too, as a hacker uses that access to get inside the parent company’s system.

Learn more about M&A services

Better Technology Sells

Companies with better technology are demanding higher prices across multiple industries. Companies that boast best-in-space technology are fetching multiples more commonly associated with pure software plays. Capital naturally goes to the places that offer the highest potential returns–and technology has helped improve returns for many businesses.

The Benefits of Technical Due Diligence for Buyers

From the buyer’s side, better technology has a number of crucial advantages. First and foremost, if a company leverages technology well, it likely has already done away with tedious labor. This can mean both lower costs when it comes to hiring employees and more satisfied employees in general, since they won’t have to worry about many of those repetitive activities as a part of their usual workflow. As a result, employees are more likely to be engaged, creative, and productive. That means innovations that could potentially rock the industry and provide additional cash flow for the business.

High-level technology often also includes proprietary platforms that become the property of the purchasing company after a merger or acquisition. Those proprietary platforms can provide clients and users with options that simply aren’t available elsewhere in the marketplace. This can lead to increased profits and awareness of the business as a whole.

Technical Due Diligence Benefits for Sellers

Since buyers are aware of the benefits of technology, sellers benefit, too. Sellers can often command higher prices when they have technological advantages to offer the buying company. Furthermore, they may be able to ask for other advantages during the selling process, including retaining current employees for a period of time, continuing to generate profits from a piece of proprietary technology for a period of time, or other key perks that will benefit the sellers immensely.

Technical Due Diligence Is Not Just for Tech Mergers and Acquisitions

Contrary to popular belief, technical due diligence, while it’s crucial for businesses in the tech industry, is vitally necessary for any business. 

A thorough tech audit can set you up for future growth and benefits, ensure that you are safe from cybersecurity threats, and help put you in a position to succeed for years in the future. Technology is the lifeblood of many organizations. If the technology is falling behind, chances are, the organization will not deliver up to expectations. On the other hand, if the technology is in place, the organization is ideally positioned to achieve its goals.

If you’re looking for superior returns on your next M&A process, make sure you’re looking at technology. While those companies may have greater overall costs upfront, they are also likely to continue to show returns for years in the future. By conducting your technical due diligence, you can make much better overall investment decisions.

Liberty Advisor Group Is Your Partner Throughout the M&A Lifecycle

At Liberty Advisor Group, we understand the fast-paced nature of M&A deals.  We accelerate timelines for quicker value realization. Using the power of technology, we grow investments and improve valuation. Our team of senior technologists and business operators understand the importance of top line growth and bottom-line efficiency. 

We are a goal-oriented, client-focused, and results-driven consulting firm. We are a lean, handpicked team of strategists, technologists, and entrepreneurs – battle-tested experts with a steadfast, start-up attitude. We collaborate, integrate, and ideate in real-time with our clients to deliver situation-specific solutions that work. Liberty Advisor Group has the experience to realize our clients’ highest ambitions. Liberty has been named as Great Place to Work, to the Best Places to Work in Chicago, and to FORTUNE’s list of Best Workplaces in Consulting and Professional Services. Contact us today to start realizing the intended value of your transactions.


Liberty Advisor Group

Add insights to your inbox

Get the latest in leadership news delivered straight to your inbox with our weekly newsletter.