Why Technical Debt is the Silver Dollar of M&A: A Due Diligence Consultant’s Guide to Evaluating Code Quality

When Code Quality Isn’t Just About Elegance – It’s About Survival

When tech companies merge, what we find in the codebase often determines whether the deal shines or tarnishes. As someone who’s evaluated dozens of acquisitions, I’ve learned that technical debt acts like hidden corrosion – it might look solid from the outside, but can crumble under pressure. Think of it like appraising rare coins: you need to examine every edge and inscription before determining real value.

The Real Cost of Cutting Corners in Code

When Technical Debt Becomes a Dealbreaker

Remember the 1918 Pittman Act that melted millions of silver dollars? We face similar tough calls with legacy systems. Here’s what actually matters when assessing code health:

• Spotting Trouble Areas: We look for tangled logic, missing documentation, and gaps in testing coverage
• Calculating Repair Costs: Whether fixing old code costs more than building fresh
• Practical Decision Making: Our straightforward method for choosing what to keep versus rebuild

Reading Your Codebase Like a Rare Coin Collection

A Real-World Software Grading System

Just like coin collectors evaluate condition, we sort code into clear categories:

if (codeQuality === 'cull') {
recommendRefactor(severity);
} else if (codeQuality === 'VG') {
documentTechnicalDebt();
} else {
flagForPreservation();
}

This simplified version of our analysis helps teams quickly spot trouble. We combine it with examining version histories, test patterns, and system dependencies to get the full picture.

Deal-Killers Every Acquirer Should Recognize

When Rewriting Becomes the Only Path

These warning signs typically mean starting from scratch:

• Overly complex logic that’s nearly impossible to modify safely
• Core systems relying on outdated, unsupported technology
• Security risks with no clear upgrade path

I once advised walking away from an $80M deal after discovering the target’s core platform was built on abandoned infrastructure – like finding out your prized silver collection was actually cheap metal underneath.

Stress-Testing for Real-World Demands

Just as the 1921 Morgan dollars tested minting limits, we push systems to their breaking point with:

• Realistic overload simulations
• Identifying single points of failure
• Practical cloud migration assessments

Our testing methods reveal hidden scalability issues in nearly 3 out of 4 companies we review – problems that rarely show up in financial statements.

The Art of Smart Tech Valuation

Tech due diligence isn’t about finding flawless code – it’s about understanding what you’re really buying. Through years of acquisitions, I’ve helped buyers distinguish between:

• Exceptional systems worth paying premium prices for
• Functional but dated code priced appropriately
• Problematic infrastructure that requires contract adjustments

Before your next deal, remember this: how a team handles technical debt reveals their operational discipline better than any spreadsheet ever could.

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