Technology due diligence has become a critical component in the investment cycle, for buyers and sellers. It provides private equity firms, strategic acquirers or investment banks with an assessment of the suitability and maturity of the technology ecosystem across software, systems, process and people in supporting future business growth. It enables sellers, such as start-ups, to be forewarned of risks and weaknesses that may feature in any buy-side technology due diligence report and impact the deal, and to address those areas in advance.
In the digital age, the technology due diligence process needs to consider how the business responds to disruptive threats and manages risks to attain and retain a competitive advantage. Areas such as cybersecurity, cloud computing, digital skills and culture, data, and product management become important factors to consider.
Although the process has evolved in recent times, preparing for technology due diligence can still be a daunting task. The typical high-level process can go something like this:
- Information Requests: the firm undertaking the due diligence will request access to, or copies of, documentation to inform their initial view. These may be diagrams such as logical and physical architectures, procedural such as the software development process, or list-based such as details of the current and future organisation.
- Information Gathering: due diligence can often be limited to lists of questions that the business is required to provide written answers to. For technology due diligence, a more effective means of information gathering is a physical or virtual meeting. This will require the business to explain technology choices, such as the architecture components and programming languages, with questions and answers.
- Analysis and Reporting: all information will be analysed by the assessing firm, and research into appropriate areas may be undertaken based upon the specifics of the engagement. This may be external factors such as megatrends and ecosystems, to provide insights into how well the business is prepared to adapt to the future needs of their client base or industry. The resulting report is issued to the named parties and discussed to provide an overview of the engagement and findings as a whole.
The end of the technology due diligence can result in mixed emotions. For some, it can feel like the end of the ultimate inquisition that leads to anxiety, self-doubt and what-if questioning. For others, it can feel like therapy and free expert advice; fresh eyes looking at the technology areas.
Whether you are considering an investment in a business or a sale of your own, at Momentum we find the right balance to make technology due diligence a straight-forward and stress-free process for all concerned while ensuring the integrity, independence and opinion are consistently maintained. Ultimately, we are nice people to do business with! Contact us to find out more.