How Tech Due Diligence Uncovers Hidden Risks in M&A Deals: A Code Audit Perspective

Why Tech Due Diligence Decides M&A Success or Failure

Picture this: You’re about to acquire a promising tech company. The pitch deck looks brilliant. But what’s happening beneath the surface? In my 12 years reviewing codebases for acquisitions, I’ve learned one truth: The difference between M&A triumph and disaster often hides in the commit history.

Let me show you how proper tech due diligence acts as your X-ray vision. Through real examples (with names changed to protect the guilty), you’ll see why some deals collapse while others create lasting value.

The $50 Million Lesson I’ll Never Forget

Early in my career, a hot SaaS startup seemed like the perfect acquisition target – until we looked under the hood. The buyer skipped thorough code reviews to “move fast.” Here’s what exploded post-acquisition:

• Nearly half their “core features” ran on outdated frameworks
• Payment systems had zero automated tests
• Microservices leaked passwords like a sieve

The aftermath? $23 million in emergency fixes and $27 million in lost customers. All preventable with proper tech vetting.

Three Make-or-Break Areas in Tech Due Diligence

1. The Truth Behind the Code: More Than Just Lines

Many buyers check test coverage percentages and call it done. Real code audits dig deeper. Here’s what we actually do:

Structural Health Check
# See how components really connect
$ archunit verify --rules=LayerDependencyRules

• Measuring complexity hotspots (those 19-layer nested if-statements)
• Checking if declared libraries match what’s actually running
• Scanning git history for hidden secrets

Real Example: A fintech company bragged about AI fraud detection. Our audit revealed 47,000 lines of tangled code even their engineers couldn’t explain. The acquisition? Scrapped quietly.

2. Will It Break When You Grow?

I always ask: “Show me what happens at 3x your current users.” One e-commerce platform’s response:

“Honestly? We’ve never tried” – Former CTO

Our scaling tests always include:

• Database performance during traffic surges
• What happens if critical third-party APIs fail
• Whether auto-scaling actually works (not just looks pretty)

# Test reality, not hopes
$ k6 run --vus 1000 --duration 30m loadtest.js

3. Hidden Legal Bombs in Your Stack

McKinsey data shows these silent killers derail most integrations:

Memory That Still Hurts: A health tech startup used open-source code improperly. Our audit caught it, saving the buyer $14 million in potential fines.

Your Practical Tech Due Diligence Playbook

After helping with 45+ acquisitions, here’s my field-tested approach:

Phase 1: Gather Intel (Days 1-14)

• Create a complete software inventory (SBOM)
• Verify architecture matches documentation
• Talk to engineers without managers present

Phase 2: Technical Deep Work (Days 15-28)

# Calculate actual risk scores
criticality = (old_libs * 3) +
(untested_code * 2) +
(shadow_dependencies * 4)

Phase 3: Reality Check (Final Week)

Simulate merging:

• Build systems – will they clash?
• User access controls – compatible or conflicting?
• Data formats – do they actually align?

Green Lights That Make Acquirers Smile

These markers predict smooth integrations every time:

Paper Trail Perfection:

• Clear records of major technical decisions
• Step-by-step recovery guides for critical systems
• New engineers productive within 48 hours

Operational Excellence:

• Thorough testing on money-making features
• Systems recovering from failures within hours
• Infrastructure managed as code (no manual server tweaks)

# The beautiful sound of stability
$ terraform plan
Changes: 0


Tech Due Diligence: Your Secret Valuation Tool

Far from just risk prevention, proper tech reviews directly increase deal value. Companies with clean audits consistently command 25%+ premiums.

Remember these essentials:

• Treat messy code like financial debt – it keeps growing
• Test systems beyond today’s needs
• Verify licenses through code scans, not paperwork

In acquisitions, the most expensive words are “We didn’t know about that.” When your tech due diligence feels almost too thorough? That’s when you’re doing it right.

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