How Technical Due Diligence Decides M&A Outcomes: The Coin Collector’s Strategy for Evaluating Code Quality

When Technical Debt Sinks Deals

Imagine buying what looks like a pristine 1935-S Washington Quarter, only to find hidden corrosion under magnification. That’s exactly what happens when acquirers skip thorough tech reviews. From my 15 years evaluating companies for acquisition, I can tell you: a target’s approach to code quality makes or breaks deals faster than you’d think. Let me show you how we apply a coin collector’s scrutiny to tech stacks, focusing on three make-or-break areas: architecture health, growth potential, and technical debt.

Thinking Like a Collector When Reviewing Code

Tech due diligence isn’t about checklists – it’s about spotting hidden flaws that others miss. Just like rare coin experts, we’ve learned to recognize warning signs that inexperienced eyes gloss over:

• The Protective Case Debate: Like collectors questioning NGC grading slabs, we determine whether legacy systems actually protect value or just hide problems
• Looking Beneath the Surface: That hazy coin finish? It’s like “clean” code masking performance-killing shortcuts
• Grading Inconsistencies: Differing standards between engineering teams create as much confusion as PCGS vs NGC coin ratings

What Really Matters in Tech Due Diligence

1. Code Review: Finding the Hidden Flaws

We examine code like collectors inspecting coin surfaces – millimeter by millimeter. Last year, a promising SaaS company nearly fooled us with beautiful-looking code that contained this ticking time bomb:

// Classic "We'll fix it later" debt
public class PaymentProcessor {
public void process() {
// Temporary fix from 2018
Thread.sleep(3000); // Bandage for race condition
legacyAuthSystem.authenticate();
}
}

We found 142 similar shortcuts slowing things down by nearly a quarter under load – the tech equivalent of PVC damage destroying a coin’s value. Here’s what we always check now:

• Automated scans with tools like SonarQube
• Historical code ownership patterns
• Security vulnerabilities in dependencies

2. Growth Potential: Will This System Scale?

Assessing scalability feels like predicting whether a coin will upgrade its grade. We examine four key factors:

• Structural Integrity: Microservices vs monoliths – and how well they actually work
• Data Handling: Can the database handle 10x more traffic tomorrow?
• Stress Limits: What happens when pushed beyond official specs?
• Team Capability: Do engineers have experience growing systems?

Real Example: A fintech claimed 10K transactions/second capacity. Our tests revealed breakdowns at 8K – saving the buyer from costly surprises.

3. Risk Assessment: Spotting Toxic Tech

That greenish patina collectors dread? In tech, it shows up as:

• Ancient libraries with security holes
• “Temporary” cloud fixes that became permanent
• Critical systems with no backup plan

We rate risks from 1 (minor) to 5 (critical) on two scales: likelihood of failure and business impact. Scores above 15? Deal negotiations stop until fixed.

Practical Due Diligence Tactics

The 80/20 Rule for Tech Reviews

Coin experts focus on the obverse (front) – we prioritize core systems that could kill the business if they fail:

Deal-Killers We’ve Encountered

Just like coins not worth removing from holders, we’ve advised walking away when finding:

• Unmapped Code Chaos: One platform had 578 microservices with no documentation – a disaster waiting to happen
• Crippling Technical Debt: A payment system needing 18 person-years to fix
• Unscalable Teams: “10x engineers” who refused to share knowledge or mentor

Proven Strategies for Better Tech Reviews

The Phased Inspection Approach

Like collectors getting second opinions before cracking slabs, we recommend staged assessments:

1. Paper Trail Review (1-2 Weeks): Architecture diagrams, monitoring systems, deployment processes
2. Team Interaction (Week 3): Pairing with engineers, dependency checks
3. Real-World Testing (Week 4): Security audits, load testing production

Saved $120M: Discovered a company’s “proprietary AI” was just repackaged open-source code during Phase 1 review.

Calculating Technical Debt Clearly

Our adapted Technical Debt Ratio gives concrete numbers:

TDR = (Fix Cost ÷ Original Build Cost) × 100

Where:

• Fix Cost = Hours to repair × $150/hour
• Original Cost = Total dev hours × $150/hour

Our Rule of Thumb:

• Under 15%: Generally acceptable
• 15-30%: Renegotiate price
• Over 30%: Seriously reconsider the deal

The Balanced Art of Tech Valuation

Tech due diligence combines hard metrics with pattern recognition – much like coin grading experts weighing quantitative measures against visual appeal. Through hundreds of engagements, we’ve found three keys to success:

• Go Deep, Not Wide: Truly understand three critical systems rather than skimming ten
• Understand the Why: Technical debt from rapid growth differs from neglect
• Future-Proofing: Can new features be added without rebuilding everything?

The collector’s choice – preserve or crossover – mirrors every acquirer’s dilemma: rebuild or improve? Companies that nail technical due diligence integrate faster and see higher returns. Sometimes, the smartest move is leaving that beautiful-looking coin in its holder – no deal beats a bad deal when the hidden flaws outweigh the surface appeal.

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