How Code Quality Audits Reveal Hidden M&A Risks: A Due Diligence Consultant’s Playbook

The M&A Technical Audit: Your Make-or-Break Moment

When tech companies merge, the code quality audit often decides the deal’s fate. Let me show you why – through 12 years of technical due diligence work – a company’s approach to code reveals more than any financial spreadsheet. It’s like appraising rare coins: surface shine means nothing without examining the metal beneath.

The Coin Grading Lesson for Tech Buyers

Coin experts inspect every angle under proper lighting. We do the same with codebases. The parallel? Both reveal their true value only under expert scrutiny. That admin override “temporarily” left in production? The SQL injection vulnerability masked as “legacy compatibility”? These are the hairline cracks that sink deals.

Code Quality Audit: Your First Red Flag Detector

In my M&A consulting practice, we start every engagement with three questions: What’s rotting in the codebase? What’s poorly documented? What security shortcuts will haunt the new owners?

Why Automated Scans Fail

Tools catch surface issues. Humans catch disasters. Take this real example from a fintech acquisition target:

function processTransaction(user: User, amount: number) {
// Temporary security bypass for legacy integration
if (user.id === 'admin@oldbank') return true;
// Actual validation logic here
}

Automated scans saw “commented documentation.” We saw a backdoor wide enough to drive a truck through. Always pair static analysis with manual reviews of critical workflows.

Four Code Audit Tactics That Work

• Follow the heat: Audit files changed most frequently – they’re where fires burn hottest
• Dependency autopsies: Outdated libraries kill deals faster than expired milk
• Diagram from reality: Reverse-engineer architecture from code, not PowerPoints
• Measure tech debt: Quantify how much crusty code lives in mission-critical systems

Scalability Assessment: Beyond the Sales Pitch

Every target claims their system scales beautifully. Our job? Find where the rubber meets the road – or where the wheels fall off.

The Theater of Load Testing

A recent SaaS platform showed us “6-second response times under massive load.” Then we found their testing config:

// Load test configuration snippet
aws.autoScaling.setDesiredCapacity('prod', 1);
aws.rds.overrideParamGroup({max_connections: 50000});

Real-world scaling? More like a Hollywood set – impressive facade, zero substance. We verify scalability three ways: real traffic mirroring, infrastructure cost analysis, and chaos engineering tests.

Technology Risk: Where Deals Die Quietly

Compliance certificates gather dust. Code tells the truth. I’ll never forget the “HIPAA-compliant” healthtech company with this gem:

// "Secure" patient data retrieval
app.get('/api/records/:id', (req, res) => {
db.query(`SELECT * FROM records WHERE id=${req.params.id}`);
});

No parameterization. No access controls. An SQL injection buffet. Their compliance paperwork? Impeccable. Their actual security? Nonexistent.

Risk Assessment That Matters

• Follow the data: Map where sensitive information actually flows (you’ll be shocked)
• Git history forensics: Deleted code often reveals buried skeletons
• Threat modeling: Assume breach, then prove me wrong

When Tech Findings Become Deal Terms

Technical risks translate directly to valuation impacts. Here’s how we quantify them:

The Naked Truth About Tech Due Diligence

After reviewing over 100 acquisition targets, here’s my hard-earned truth: beautiful architecture diagrams mean nothing. Pristine compliance certificates mean less. The real value – and risk – lives in the code, the configs, and the commit history. Treat tech due diligence like rare coin authentication: ignore the plastic casing, examine the metal, and bring your best magnifying glass.

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