How Code Quality Audits Reveal Hidden Risks in M&A Tech Due Diligence

Why Tech Due Diligence Makes or Breaks M&A Deals

When companies merge, a thorough code quality audit isn’t just nice-to-have – it’s essential. Let me show you why what’s beneath the surface matters more than flashy demos. Think of it like rare coin appraisal: seasoned collectors examine every microscopic detail before paying top dollar. In tech acquisitions, we do the same with code and infrastructure.

What Coin Collectors Teach Us About Tech Value

Coin experts spot artificial toning that inflates prices. Tech buyers face similar traps:

• Beautiful interfaces masking messy code
• “Innovative” features built on shaky foundations
• Growth projections ignoring technical constraints

In my experience, these oversights cost acquirers millions when overlooked.

Three Make-or-Break Checks in Tech Due Diligence

1. Code Quality: Your First Warning System

Clean code tells you more than any sales pitch. Compare these examples from a recent audit:

// Red flag code
function processTransaction() {
// Endless nested loops
// No error handling
// Secret API keys exposed
}

// Healthy acquisition target
@Transactional
public Payment process(PaymentRequest request) {
return paymentGateway.execute(request);
}

Watch out when: Teams resist code reviews or lack testing frameworks
Breathe easier if: You see continuous deployment pipelines and 80%+ test coverage

2. Scalability: Stress Testing Your Tech’s Limits

Can their systems handle real-world demands? We always check:

• Peak transaction capacity
• Database optimization strategies
• Auto-scaling configurations

One “high-growth” SaaS company we evaluated couldn’t handle 500 simultaneous users – a discovery that renegotiated their price tag downward by 60%.

3. Security: Don’t Get Fooled by Shiny Surfaces

Like detecting counterfeit coins, we uncover:

• Outdated encryption protocols
• Unpatched vulnerability histories
• Shadow IT systems

I’ll never forget the fintech startup with gorgeous APIs… using deprecated SHA-1 encryption. It was like finding a brilliant uncirculated coin with a hidden hole.

Your Action Plan for Smarter Tech Audits

The 5-Point Inspection Checklist

Here’s what to inspect in every acquisition target:

1. Automated code quality reports
2. Infrastructure dependency maps
3. Recent penetration test results
4. Disaster recovery documentation
5. Key developer employment terms

When Tech Issues Hit the Bottom Line

Here’s how technical debt translates to financial impact:

Turning Tech Checks into Smarter Deals

Thorough technical due diligence isn’t about nitpicking – it’s about protecting investments. By examining code quality, scalability, and security with professional rigor, you turn acquisition risks into informed decisions. Remember: the shiniest products often carry the heaviest technical debt. Treat every target company like a rare collectible – inspect before you invest.

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