Red Flags in Tech Due Diligence: How Code Quality Audits Make or Break M&A Deals

When Tech Debt Sinks M&A Deals

Picture this: Your company just found the perfect acquisition target. Their revenue graphs look incredible. But then your tech team uncovers a nightmare – tangled code, failing tests, and servers held together with digital duct tape. Suddenly, that attractive price tag comes with hidden costs. This happens more often than you’d think.

Why do so many promising deals collapse during tech due diligence? Because what looks like minor technical debt today becomes acquisition debt tomorrow. Let’s explore how smart buyers spot these risks before signing papers.

The Code Autopsy: Finding What Really Kills Deals

What Your Git History Reveals

Pull up the commit logs and you’ll see the real story behind those shiny features:

git log --since='2022-01-01' --pretty=format:'%h - %an, %ar : %s'

Watch for these warning signs:

• Midnight commits before investor demos
• Critical fixes pushed by contractors instead of core team
• The same three files failing tests for six months

When “It Works” Isn’t Good Enough

We once reviewed a fintech startup with “functioning” payment processing. Their demo worked perfectly. Then we found this:

‘Our gateway connects through four different APIs because we never replaced the legacy systems. New engineers need two months just to understand the flow.’

The acquirer walked away – that refactor would have cost millions.

Stress Testing: Will It Survive Growth?

Breaking Points You Can’t Ignore

Modern systems need to handle more than today’s traffic. We simulate worst-case scenarios:

• What happens when user count jumps overnight?
• Can databases handle 10x queries without melting?
• How fast do systems recover when cloud providers fail?

Real Infrastructure, Real Problems

This actual server config from a healthtech startup explains why their app crashed during open enrollment:

server {
worker_connections 768; # Barely handles lunchtime traffic
keepalive_timeout 65; # Creates massive zombie connections
}

Simple fixes? Yes. But undiscovered until due diligence? Dealbreaker.

Hidden Bombs in the Tech Stack

The Frankenstein Infrastructure Problem

Merged companies often find their systems can’t coexist. Watch for:

• Three different teams provisioning AWS differently
• Containers that only run on old Kubernetes versions
• Database clusters that never actually replicated properly

When Tribal Knowledge Walks Out

Nothing kills post-merger integration faster than hearing:

“The authentication service? Yeah, Sarah built that. She quit last month. We think her notes are in Google Drive… somewhere.”

Your Tech Due Diligence Survival Kit

1. Commit history timeline analysis
2. Production environment load testing

3. Infrastructure-as-code validation
4. Knowledge transfer risk scoring
5. Third-party dependency health checks

Don’t Buy Someone Else’s Problems

Great acquisitions happen when buyers see beyond current revenue to future technical viability. Treat code quality audits like financial audits – because technical debt ultimately becomes financial debt. Bring in experts early, test everything, and remember: The best deals avoid inheriting problems you can’t fix.

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