5 Hidden Tech Debt Red Flags That Can Kill Your M&A Deal

When Penny-Pinching Practices Sink Million-Dollar Acquisitions

Why do promising acquisitions sometimes implode after the deal closes? The answer often lies buried in code. When evaluating tech companies for M&A deals, how teams handle technical debt makes all the difference between a smart purchase and a money pit.

Think of it like sorting through a giant jar of pennies. At first glance, all coins look similar. But dig deeper and you’ll find a few valuable copper ones mixed with worthless zinc. Technical due diligence works the same way – separating real innovation from superficial polish.

Spotting Trouble: The Penny Jar Warning Signs

After auditing tech stacks for dozens of acquisitions, I’ve seen the same patterns sink deals:

• Jammed Systems: Teams drowning in maintenance work (your 5-gallon jug of pennies)
• Blind Spots: No way to track code quality or system health (sorting coins in the dark)
• Manual Overload: Engineers stuck fixing old code instead of building new features (hand-counting zinc coins)

Real Deal Breaker: The $47M Perl Disaster

Last year, a payment processor seemed perfect – until we opened their codebase. We found 14 million lines of Perl scripts last updated when flip phones were cool. Their “efficient” team was actually spending 70% of their time keeping this mess running.

# The code that nearly sank the deal
sub process_transaction {
my ($self, $txn) = @_;
# TODO: Add error handling (added 2012)
$db->query("INSERT INTO payments VALUES (
$txn->{amount},
$txn->{date} || 'T00:00:00' # Time warp hack
)");
}

Three red flags in 10 lines: decade-old TODOs, unsecured database queries, and duct-tape fixes for dead systems. This wasn’t technical debt – it was technical bankruptcy.

Code Health Check: Your Deal-Making X-Ray

The Feature vs. Fix Ratio

Strong tech teams spend most energy moving forward. Watch for these warning signs:

• Test coverage below 70% (untested code = unverified value)
• CI/CD pipelines failing more than 10% of the time
• Over 30% of engineer hours spent patching old systems

Deal Killer Alert: If a target’s engineers can’t describe their system architecture in under 5 minutes, run.

Will This System Handle Growth? Stress Test Time

That “high-performance” platform? Let’s see how it handles real pressure.

1. The Traffic Surge Test

Can systems automatically handle 10x normal load? We look for:

• Cloud auto-scaling that actually works
• Simple database queries with proper indexes
• Error rates below 1% during peak loads

2. Database Danger Zones

One e-commerce target bragged about fast searches. Then we tried this query during rush hour:

// What not to do with 2TB of data
Product.find({
$text: { $search: req.query.terms },
archived: false
}).sort({ created_at: -1 }).limit(100);
// Zero indexes = 14 second waits

Unindexed searches on huge datasets turn minor traffic spikes into total meltdowns.

Security Red Flags: Don’t Inherit a Breach

Hidden vulnerabilities become your liabilities on day one. Always check:

• When dependencies were last updated (6+ months old = danger)
• Where secrets are stored (hopefully not in code)
• Whether they’ve had recent penetration tests

The Log File Time Bomb

During a financial services acquisition, we found unencrypted bank account numbers in system logs – the digital equivalent of leaving vault doors open. Our 3-step discovery process:

1. Mirror their production environment
2. Run security scans with actual hacker tools
3. Try escalating from intern-level access to admin rights (succeeded in 28 minutes)

Your Acquisition Inspection Kit

Before signing anything, work through this list:

1. Track how often code changes vs. bugs fixed
2. Test database recovery from backups
3. Check if monitoring covers business-critical features
4. Search Git history for passwords and API keys
5. Verify disaster recovery actually works
6. Profile performance at 3x normal load
7. Review third-party license risks
8. Confirm encryption keys rotate regularly
9. Audit cloud infrastructure configurations
10. Estimate needed architecture upgrades

Don’t Let Hidden Tech Debt Sink Your Deal

Smart tech due diligence isn’t about finding perfect code – it’s about avoiding toxic assets. That shiny application might be copper on the surface but filled with cheap zinc underneath. By checking code health, scalability limits, and security practices upfront, you’ll stop expensive surprises from hijacking your M&A success. Remember: What you don’t find during diligence becomes your emergency to fix later.

Related Resources

You might also find these related articles helpful:

• How Identifying High-Value Pennies Taught Me to Charge $200+/Hour as a Tech Consultant – How Identifying High-Value Pennies Taught Me to Charge $200+/Hour Want to know the secret to charging premium rates? Sto…
• Leaving Your Fingerprint on Technical Literature: My Proven Process for Writing Authority-Building Books – Crafting Technical Books That Become Career Milestones Writing a technical book transformed my career – and it can…
• Building HIPAA-Compliant HealthTech Systems: A Developer’s Blueprint for Secure Patient Data Handling – Why HIPAA Compliance Matters in HealthTech Development Creating healthcare software means more than writing code –…