Tech Due Diligence

Technology Due Diligence

Required Inputs

• Target Company: Name and brief description of the acquisition target.
• Deal Thesis: Strategic rationale for the acquisition (talent, technology, market, product).
• Transaction Type: Buy-side, sell-side, or merger.
• Acquirer Technology Stack: High-level description of the acquirer's current technology environment.
• Available Access: What materials/access are available (data room, codebase, interviews, documentation).
• Timeline: DD period duration and key milestones.

Execution Steps

1. Scope Definition and Planning

Define DD scope based on deal thesis. Technology DD covers seven workstreams:

Access request list (send to target within 48 hours):

• System architecture diagrams and documentation
• Codebase access (read-only repository access or code samples)
• Infrastructure inventory and cloud spend reports (12 months)
• Security audit reports and penetration test results (last 2 years)
• Incident logs and post-mortem reports (last 12 months)
• CI/CD pipeline configuration and deployment history
• Team org chart with roles, tenure, and skill profiles
• IP filings, patent portfolio, and open-source dependency manifests
• SLA/SLO dashboards and uptime reports
• Third-party vendor contracts and licensing agreements

2. Infrastructure Assessment

Evaluate the target's infrastructure foundation.

Cloud & Hosting Evaluation:

Cloud Spend Analysis:

• Monthly cloud spend trend (12 months): growth rate vs. revenue growth rate
• Top 10 cost drivers by service
• Reserved/committed vs. on-demand spend ratio
• Projected spend at 2x and 5x current load

Cloud Readiness Score (if on-premises):

3. Application Architecture Assessment

Evaluate architecture patterns, fitness, and modernization needs.

Architecture Pattern Classification:

Architecture Quality Scorecard (the "-ilities"):

Scalability Stress Analysis:

4. Code Quality and Technical Debt Quantification

Code Analysis Metrics:

Technical Debt Classification:

Technical Debt Quantification Formula:

Total Tech Debt Cost = Sum of (Remediation Effort in person-months x Loaded Cost per person-month)
Tech Debt Ratio = Tech Debt Cost / Total Codebase Rewrite Cost

• Tech Debt Ratio < 5%: Healthy
• Tech Debt Ratio 5-15%: Manageable with dedicated allocation
• Tech Debt Ratio 15-30%: Significant; requires remediation roadmap
• Tech Debt Ratio > 30%: Potential deal breaker; may warrant rewrite assessment

Dependency Risk Assessment:

• Count of direct and transitive dependencies
• Licenses: copyleft (GPL) vs. permissive (MIT, Apache) -- flag copyleft in commercial products
• Abandoned dependencies (no commits in 12+ months)
• Single-maintainer critical dependencies
• Known CVEs by severity

5. Security Posture Review

Security Assessment Matrix:

Compliance Gap Analysis: For each applicable regulation, document:

• Current compliance status (compliant / partial / non-compliant)
• Gap description
• Remediation effort estimate
• Timeline to compliance
• Cost estimate

6. Development Team and Process Assessment

Team Composition Analysis:

Bus Factor Analysis:

• Identify components/systems with single-person knowledge
• Score: 1 = single person, 2 = two people, 3+ = adequate coverage
• Any component with bus factor of 1 = Significant Risk finding

DevOps Maturity Assessment (1-5 scale):

7. IP and Proprietary Technology Evaluation

IP Portfolio Assessment:

Open-Source Exposure Analysis:

• Copyleft dependencies in proprietary code (GPL, AGPL, LGPL risk)
• Contribution agreements (CLA) in place for OSS contributions
• Open-source components in core differentiating technology
• License compliance tooling in CI/CD pipeline

8. Integration Complexity Analysis

Integration Assessment with Acquirer Stack:

Integration Effort Estimate:

9. Technology Investment Requirements (18-Month Post-Close)

Investment Categories:

10. Finding Classification and Synthesis

Classify every finding using the technology DD severity matrix:

Output Template

# Technology Due Diligence Report: [Target Company]

**Prepared for**: [Acquirer] | **Date**: [Date] | **Confidentiality**: Strictly Confidential

## Executive Summary

**Overall Technology Risk Rating**: [Deal Breaker / Significant Risk / Manageable / Non-Issue]

**Technology Maturity Level**: [1-5] - [Ad Hoc / Managed / Defined / Quantified / Optimizing]

[3-5 sentence summary of the technology estate, key strengths, and critical concerns.]

### Finding Summary
| Severity | Count | Key Items |
|---|---|---|
| Deal Breaker | X | [Brief descriptions] |
| Significant Risk | X | [Brief descriptions] |
| Manageable | X | [Brief descriptions] |
| Non-Issue | X | -- |

### Estimated Post-Close Technology Investment: $[X]M - $[Y]M (18 months)

## 1. Infrastructure Assessment
**Maturity Level**: [1-5]
[Findings with severity classification]

## 2. Application Architecture Assessment
**Architecture Pattern**: [Monolith / Microservices / Serverless / Hybrid]
**Architecture Quality Score**: [X]/5.0
[Findings with severity classification]

## 3. Code Quality & Technical Debt
**Test Coverage**: [X]% | **Tech Debt Ratio**: [X]%
[Findings with severity classification]

## 4. Security Posture
**Compliance Status**: [Certifications held and gaps]
[Findings with severity classification]

## 5. Development Team & Processes
**Team Size**: [X] | **DevOps Maturity**: [1-5]
**Critical Bus Factor Risks**: [Components with bus factor = 1]
[Findings with severity classification]

## 6. IP & Proprietary Technology
**Patent Portfolio**: [X patents filed/granted]
**Open-Source Risk**: [Low / Medium / High]
[Findings with severity classification]

## 7. Integration Complexity
**Overall Integration Effort**: [Low / Medium / High / Very High]
**Estimated Timeline**: [X] months to full harmonization
[Integration roadmap and cost estimates]

## 8. Technology Investment Requirements (18-Month Post-Close)
| Category | Low Estimate | High Estimate | Priority |
|---|---|---|---|
| [Category] | $[X] | $[Y] | [Critical/High/Medium] |
| **Total** | **$[X]M** | **$[Y]M** | |

## Detailed Findings Register

| # | Finding | Workstream | Severity | Remediation | Est. Cost | Timeline |
|---|---|---|---|---|---|---|
| 1 | [Description] | [Area] | [Severity] | [Action] | $[X] | [Weeks] |

## Recommendations

### Proceed with Transaction (Conditions)
1. [Condition 1 with rationale]
2. [Condition 2 with rationale]

### Price Adjustment Considerations
- [Item]: $[X]-$[Y] adjustment basis

### Integration Planning Priorities (First 90 Days)
1. [Priority action]
2. [Priority action]
3. [Priority action]

Quality Checks

• All seven workstreams assessed with evidence-based findings.
• Every finding classified as Deal Breaker / Significant Risk / Manageable / Non-Issue.
• Technology maturity level (1-5) assigned with supporting evidence per workstream.
• Architecture "-ilities" scored individually with justification.
• Technical debt quantified in dollar terms (range, not point estimate).
• Security posture reviewed against applicable compliance frameworks.
• Bus factor identified for all critical components.
• Integration complexity assessed against acquirer's specific tech stack.
• 18-month investment estimate provided as a range with breakdown.
• Executive summary can stand alone for deal team decision-making.
• Scalability assessed at 2x, 5x, and 10x current load.
• Open-source license risks flagged (copyleft in commercial code).
• Cloud readiness scored if on-premises migration is anticipated.
• All cost estimates carry confidence levels (High/Medium/Low).