What is tech-diligence?

Any major transaction requires some form of due diligence. Whether buying a home or a company. While we are excited for any purchase and the future potential, we also want to be careful that we aren’t buying the proverbial lemon.

At a minimum, you will have a building inspector for home purchases, but there are other advisors that could come in. Whether it be appraisers, lenders, HVAC specialists, etc. For businesses, they will do what they can in-house, but will also bring in outside firms to help consult on funding, handle the regulatory minefields, build up the expected projects, and negotiate the transitions. From the conversations I’ve had so far, the one area that is not evaluated until after the deal closes is the tech.

Yet, if you think about the growing mantra of the last decade, all companies are tech companies. From the software powering payroll to HR and accounting for most traditional small businesses to those that rely heavily on custom software managing the critical parts of the enterprise. Even for typical software companies, how is that code managed, built, and shipped to your computer or accessed whenever you go to their website? How does it mesh with your company?

Given how critical these challenges are, wouldn’t it be foolish to not not factor this in to any of the pre-acquisition discussions? While I’m willing to bet this won’t be a deal breaker, setting realistic expectations at the beginning will allow for proper negotiation of things such as timetables for conveying applications and data. Additionally, this will allow you to plan for a more realistic integration budget beyond the $10k I’ve seen from some M&A firms suggest setting aside, and I’m willing to bet that alone will be very useful when it comes to negotiating a price.

Granted, there are limits to what can be asked depending on the phase, but that shouldn’t stop you from trying to get as complete of a picture as you can.