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September 24, 2025
When Code Quality Becomes Your Deal Breaker
Tech acquisitions live or die by their code quality. As an M&A consultant who’s seen hundreds of deals, I can tell you that skipping thorough technical due diligence is like buying a used car without checking under the hood – you might be inheriting someone else’s expensive problems.
The “Meaty Codebase” Trap
There’s a dangerous pattern I’ve spotted in failed acquisitions: what looks like a robust system often hides serious issues. One client nearly overpaid millions for a company whose codebase had:
- Enough dead code to fill a small novel (400,000 lines!)
- Critical systems relying on libraries that hadn’t been updated since 2012
- Not a single automated test in sight
This is why we treat every code review like an archaeological dig – you never know what skeletons you’ll uncover.
The 5-Point Tech Due Diligence Blueprint
After evaluating dozens of acquisitions, here’s the exact framework I use to spot trouble before it’s too late:
1. The Code Health Check
We look for warning signs like this:
// Classic red flags we frequently encounter
function processPayment() {
// 600 lines of spaghetti code
// Database passwords in plain text
// Zero comments explaining logic
}
2. Will It Scale? (The Million-Dollar Question)
Every buyer should ask:
- Will the servers catch fire if users double overnight?
- Are there backup plans when (not if) components fail?
- How painful will moving to the cloud really be?
3. The Tech Risk Reality Check
Our scoring system reveals hard truths:
| Risk Factor | Weight | Score |
|---|---|---|
| Outdated Dependencies | 30% | High |
| Security Vulnerabilities | 25% | Critical |
| Data Compliance | 20% | Medium |
A $2.8 Million Wake-Up Call
We once reviewed a “perfect” SaaS company that was actually running on duct tape and prayers. Their engineering team swore everything was fine, but our report showed:
“Current architecture would require nearly $3 million just to handle basic growth projections”
That single discovery justified slashing the purchase price by 40%.
Your Tech Due Diligence Survival Kit
Before signing any M&A deal:
- Get full code access early – no exceptions
- Run automated scans (they don’t lie)
- Have real talks with engineers (not just the CTO)
- Test deployment scripts yourself
- Map out data migration step-by-step
The Bottom Line: Code Tells the Truth
In tech acquisitions, what matters most isn’t the sales pitch – it’s what’s actually in the repository. Three lessons from the trenches:
- Beautiful UIs often hide ugly code
- Bring in fresh eyes (we always find what internal teams miss)
- Translate tech debt into dollar amounts
Remember: The most expensive acquisition mistakes happen when buyers don’t look closely enough at the technology they’re buying.
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