Preparing for technology due diligence can be a daunting task regardless of whether it’s your first time or your hundredth time.
The approach has changed in recent times to match the changing needs of potential buyers and the role of technology. When preparing for technology due diligence, it’s useful to understand the particular type of process that will be undertaken.
Fundamentally, the firm undertaking the technology due diligence needs to help the buyer avoid any banana skins and to help them avoid paying too much.
In that regard, investors require rapid insights across the value chain, with both opinions and facts to clearly understand the downside risks and validation of value opportunities. Common requirements include the fitness for purpose of the technology; the scalability, performance, resiliency, robustness and so on. Others include more strategic areas such as future architecture state and technology roadmap. More recently, investors are interested in the target company’s ability to avoid disruption from new entrants by exploiting new technologies and modern ways of working.
To prepare for technology due diligence, the following simple steps can be taken.
- Keep your documentation up-to-date and make it easily accessible. You will be asked for documentation, and being able to supply this quickly and easily will make the rest of the process much smoother.
- Keep on top of operational and hygiene factors. Check your cybersecurity measures, understand your backup frequencies including RTO and RPO, get your disaster recovery plan in place and rehearsed.
- Have a shared understanding of your technology eco-system. Ensure that a consistent and clear fact is given regardless of who is asked the question. You will be asked ‘How’ and then ‘Why’ so have answers to those ready.
- Have a future state plan. Managing the current activities need to be coupled with modelling the future plans. This doesn’t need to be endless prose and sugary documents. A simple ‘We go to the moon’ one-pager with scribbles and rough numbers can often be seen as a strength for many different reasons.
- Have efficient and focused demonstrations and inspections ready to go. Avoid the ‘how many technology people does it take to connect to the WiFi’ quips.
- If the technology due diligence includes an onsite meeting, make sure you work with the advisor to structure an agenda that works for you as much as them. Avoid opportunities to filibuster!
The role of technology due diligence isn’t necessarily to provide opinion on the merits or otherwise of a particular architecture or programming language. For example, monolithic can be OK. Investors and buyers expect ‘a little hair on the deal’ i.e. it will not be perfect, so be open and honest. Don’t sweep negatives under the carpet, just have a plausible explanation and plan as to why something isn’t as you would like it to be.
At Momentum, we can help you to prepare for technology or digital due diligence. We can provide focused workshops, on-demand advice and a dry-run simulation of the actual buy-side process during the preparation and any future transaction process. Contact us or a confidential conversation.