How Great American Coin Show Report Highlights Key Technical Due Diligence Red Flags in M&A Deals

Tech M&A deals move fast. One overlooked flaw in the target’s systems can turn a promising acquisition into a costly headache. I learned this the hard way early in my career—after a codebase with undocumented spaghetti logic nearly derailed a seven-figure deal. That’s why I now scrutinize technical due diligence like a detective. The right red flags? They’re often hiding in plain sight.

Why Technical Due Diligence Makes or Breaks M&A Deals

M&A isn’t just about spreadsheets. The tech behind a deal can make or break it. A flashy product means nothing if the codebase is a house of cards. I’ve seen companies overvalue targets because they skipped the real technical audit. You’re not just buying revenue—you’re inheriting code, architecture, and teams. And that’s where things get messy.

What to Check in a Tech Due Diligence Audit

Skip the fluff. Focus on four core areas to spot risks before they sink your deal:

• Code Quality: Is the code clean, maintainable, and well-documented? Or is it a tangled mess that will cost a fortune to fix?

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• Scalability: Can the system handle 10x more users? Or will it collapse under growth?

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• Technology Risk: Are there skeletons in the closet? Think security flaws, outdated libraries, or shaky third-party dependencies.

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• Integration: Will the tech play nice with your systems, or will merging it feel like forcing a square peg into a round hole?

Code Quality: The Foundation of a Solid Deal

Bad code is a silent killer. It drains budgets, slows innovation, and frustrates engineers. In tech due diligence, the codebase tells you more than any pitch deck.

Code Structure: A Window into the Team’s Discipline

Open the repo. Are folders logically organized? Is there a clear separation between features, services, and tests? A monolithic, disorganized codebase is a red flag. It suggests the team cuts corners—and that’s a liability post-acquisition.

Testing and CI/CD: The Signs of a Mature Dev Team

Automated tests aren’t optional. If the target lacks unit, integration, or end-to-end tests, run. Similarly, CI/CD pipelines show they value quality and speed. No pipeline? That’s a warning sign.

Here’s a basic but effective CI/CD setup (GitHub Actions) I often see in healthy startups:

name: CI/CD Pipeline

on:
  push:
    branches:
      - main

jobs:
  build:
    runs-on: ubuntu-latest
    steps:
    - uses: actions/checkout@v2
    - name: Set up Node.js
      uses: actions/setup-node@v2
      with:
        node-version: '14'
    - name: Install dependencies
      run: npm install
    - name: Run tests
      run: npm test
    - name: Build
      run: npm run build
    - name: Deploy
      run: npm run deploy

This setup isn’t flashy. But it tells you the team tests every change—a must for post-acquisition stability.

Scalability: Can the Tech Handle Growth?

You’re buying for the future, not the past. If the system can’t scale, revenue projections are fiction.

Architecture: Monolith vs. Microservices

Monoliths have their place, but they’re harder to scale. During audits, I look for microservices, containerization (Docker), or orchestration (Kubernetes). These tools let teams add capacity without rewrites. No signs of these? Ask why.

Performance Under Load: Don’t Trust Benchmarks Alone

Check real-world metrics: response times, error rates, CPU usage. Tools like New Relic or Prometheus reveal how the system behaves when stressed. A 2-second lag during peak traffic? That’s a scalability red flag.

Technology Risk: Uncovering Hidden Deal-Killers

Tech due diligence isn’t just about what’s working. It’s about what might break.

Security: The Silent Threat

Security flaws sink deals fast. I’ve seen acquisitions stall over unpatched vulnerabilities. Use tools like OWASP ZAP or SonarQube to scan the codebase. And ask: Has the company had breaches? How do they respond to incidents?

Third-Party Dependencies: A Hidden Time Bomb

Outdated or unmaintained libraries? They’re ticking time bombs. Check dependency trees. In Node.js, run:

npm outdated

If half the list is yellow or red, that’s a problem. Same for deprecated APIs or unsupported services.

Licensing: The Legal Landmine

Open-source licenses matter. GPL, MIT, Apache—each has different implications. I once spotted a target using GPL-licensed code in a proprietary product. That single finding saved the acquirer from a legal nightmare.

Integration: Will the Tech Merge—or Clash?

Even great tech fails if it can’t integrate. This is where most post-acquisition projects go off the rails.

API and Data: The Glue Between Systems

Will the target’s APIs talk to your systems? Are data formats (JSON/XML) compatible? If not, you’re signing up for months of tedious transformation work. I’ve seen teams underestimate this effort—and overrun budgets.

Team and Process: Culture Matters

Tech merges fail when teams clash. Ask: Do they use Agile or Waterfall? Jira or Trello? If their workflows don’t align, expect friction. A startup with no process might struggle to adopt your corporate tools. And a rigid enterprise team may stifle their creativity.

Your Due Diligence Checklist: Spot Red Flags Early

Technical due diligence isn’t optional. It’s your insurance policy. I’ve walked clients away from deals over a single critical flaw—and advised others to buy based on a clean audit. The goal isn’t to kill deals. It’s to make sure you know what you’re buying.

Focus on the four pillars: code, scalability, risk, and integration. Run the tests. Check the dependencies. Talk to the engineers. Because the tech behind a deal? That’s what determines if it thrives—or tanks.

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