How Code Quality Audits Can Make or Break M&A Deals: Lessons from the Hunt for Hidden Tech Defects

Picture this: You’re about to buy a company. The numbers look good, the pitch deck is slick, and everyone’s excited. Then, your lead engineer opens the codebase—and discovers a house of cards.

I’ve been there. As an M&A consultant, I’ve seen how a single overlooked technical flaw—like a security hole, undocumented legacy system, or licensing landmine—can turn a promising deal into a costly headache. That’s why a technical audit isn’t just paperwork. It’s your best defense against overpaying or inheriting tech that will sink the integration.

The Importance of Technical Due Diligence in M&A

No one buys a company hoping to find problems. But ignoring technical due diligence? That’s how deals fall apart.

I’ve watched solid acquisitions derail because someone assumed “the tech must be fine.” Spoiler: It rarely is. A detailed technical review reveals what spreadsheets and slide decks can’t—risky code, hidden costs, and whether the product will actually scale with your business.

Why Technical Due Diligence Matters

• Risk Mitigation: Spot problems before they become your problems. (Yes, that means avoiding the “we’ll fix it later” trap.)
• Value Adjustment: If the codebase is a mess, the price should reflect that. Audits give you the leverage to renegotiate.
• Integration Planning: What’s the real cost of merging systems? How long will it take? Tech due diligence answers these questions with facts, not guesses.

Code Quality Audit: The First Line of Defense

Think of the code quality audit as your “sniff test” for the entire deal. It answers one big question: *Can this codebase survive the next five years?*

I once reviewed a startup with a beautiful UI but a backend full of shortcuts. The team had taken every possible optimization gamble to hit launch deadlines. It worked—until it didn’t. The acquiring company ended up spending six figures just to make the system stable.

Key Focus Areas in a Code Quality Audit

• Code Consistency: Are there clear standards, or is it a free-for-all?
• Documentation: If the original devs left tomorrow, could a new team understand the code?

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• Technical Debt: Are there shortcuts that will cost big time later?

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• Security Vulnerabilities: Are there ticking time bombs waiting to go off?

Example: Assessing Code Quality

Here’s a function I saw in an audit last year. It looks harmless—until you realize it’s called thousands of times a day:


// Poorly documented and missing error handling
function processData(data) {
if (data) {
const result = data.filter(item => item.isActive && item.value > 10);
return result;
}
return undefined;
}


No input validation. No error handling. No comments explaining why the threshold is 10. A junior developer could break this with a typo, and no one would know until customers started reporting issues.

That’s not just bad code—it’s a business risk.

Scalability Assessment: Can the Tech Stack Handle Growth?

Fast-growing startups often build for today, not tomorrow. That’s fine—until they get acquired by a company with 10x the users.

I’ve seen systems collapse under load that the founders swore were “built to scale.” The truth? They hadn’t tested it. Not once.

What to Look for in a Scalability Assessment

• Architecture: Is it built to grow, or will it need a complete rebuild?

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• Performance Metrics: Have they tested under real-world conditions, or just in the dev environment?

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• Resource Utilization: Does the system waste cloud costs, or use resources efficiently?

Actionable Takeaway: Load Testing

Don’t take their word for it. Test it yourself. Here’s a simple k6 script to simulate traffic and see what breaks:


import http from 'k6/http';
import { sleep, check } from 'k6';

export default function() {
let res = http.get('https://example.com');
check(res, {
'status was 200': (r) => r.status == 200,
'response time OK': (r) => r.timings.duration < 200, }); sleep(1); }

Run this at 100, 1,000, even 10,000 users. Watch the error rate climb. That’s your first clue whether the system will survive your growth plans.

Technology Risk Analysis: Identifying Hidden Defects

Some risks aren’t in the code. They’re in the fine print.

I remember a deal that nearly collapsed because the target used an open-source library with a "copyleft" license. The terms? Any new code built on top had to be open-sourced too. That meant giving away the acquirer’s proprietary tech. Oops.

Common Technology Risks in M&A

• Legacy Systems: Old code isn’t bad by itself, but it can cost a fortune to maintain or replace.
• License Compliance: Is every third-party tool and library legally cleared for commercial use?
• Data Privacy: Are they GDPR, CCPA, or HIPAA compliant? Or are you buying a legal time bomb?

Case Study: Uncovering License Issues

During one audit, we found a dependency graph full of red flags. The team had used a GPL-licensed library in a closed-source product—violating the license. The fix? Either rewrite the code or pay for a commercial license. The buyer adjusted the deal price by 15% to cover the cost.

That’s the power of digging into the details.

Red Flags and Green Lights in M&A Tech Due Diligence

After years of audits, I’ve learned what to watch for. Some signs scream "walk away." Others whisper "this could work."

Red Flags

• Lack of Documentation: If you can’t figure out how it works, you’ll pay to rebuild it.

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• High Technical Debt: More than 20% of code flagged as "to refactor" is a warning sign.
• Security Vulnerabilities: Unpatched issues in core components are a liability, not a fixable flaw.

Green Lights

• Well-Documented Code: Clear READMEs, inline comments, and architecture diagrams save months of work.
• Automated Testing: 70%+ test coverage and CI/CD pipelines mean the team takes quality seriously.
• Scalable Architecture: Microservices, containerization, and documented APIs make integration smoother.

Conclusion

Technical due diligence isn’t about finding perfection. It’s about finding truth.

A strong code quality audit, scalability test, and risk analysis give you the real story behind the numbers. You’ll know what you’re buying—and how much it will really cost to own.

Remember: In M&A, the little things matter. A missing comment. An outdated library. A single untested edge case. These details don’t just affect code. They affect price, timing, and whether the deal makes sense at all. So ask the hard questions. Test the system. And never, ever skip the audit.

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