Why Binary Tech Assessments Are Killing M&A Deals: A Due Diligence Consultant’s Warning

The Hidden Risks in Technical Due Diligence

What really happens when Company A buys Company B? As an M&A tech consultant who’s reviewed over 47 acquisitions, I’ve watched deals implode over a critical mistake: treating complex systems like simple checkboxes. Let me show you why that “pass/fail” mentality could cost you millions.

When Code Quality Grades Lie

Many acquirers make the same misstep coin collectors do – trusting shiny labels over reality. During one deal, a startup proudly showed us their “100% test coverage.” Digging deeper revealed 6,000 lines of:

// TODO: Fix this later (written in 2019)

Their secret? Commenting out problematic code instead of fixing it. This isn’t unusual – I see it at least twice per quarter.

The Checklist Deception

“CI/CD? Check. 80% coverage? Check. No critical bugs? Ship it!”

Sound familiar? This approach misses what matters. Last year, a client nearly bought a fintech firm that aced all automated scans. Then we found their “cloud-native” system crumbled under 500 concurrent users.

How to Audit Properly

• Follow the money: Map tests to revenue-critical features
• Watch the trend: Is tech debt growing faster than features?
• Cross-validate: Combine SonarQube with manual code walks

Scalability Theater: When Architecture Diagrams Lie

Remember that “Kubernetes-optimized” platform I mentioned? Their beautiful diagrams hid a costly secret – auto-scaling set to spawn 100 pods by default. During load testing, their AWS bill jumped 400% in 15 minutes.

The Cloud Mirage

Modern doesn’t mean efficient. We often find:

replicas: 100 # Why not?

Teams pick trending tools without understanding tradeoffs. One acquisition target used microservices so fragmented that simple searches took 12 API hops.

Stress-Testing Secrets

• Make databases sweat with real query patterns
• Break things on purpose (chaos engineering isn’t just for Netflix)
• Compare costs to AWS Well-Architected benchmarks

Time Bombs in Your Dependency Tree

Last year, a client ignored our warning about outdated libraries. Six months post-acquisition? A $4.3M breach traced to:

└── deprecated-library@2.4.5 (UNMAINTAINED)

Security scans missed it because the vulnerability database hadn’t updated. This happens more than you’d think.

Finding Rotten Foundations

• Check maintainer activity – last commit dates matter
• Calculate “what if” scenarios for tech debt cleanup
• Spot single points of failure (“Only Jane knows the billing system”)

Your Battle-Tested Due Diligence Checklist

After 12 years uncovering ugly truths, here’s what actually works:

Code That Doesn’t Crunch

• Hunt for “panic commits” before funding rounds
• Measure if code complexity is rising faster than revenue
• Test legacy systems with real data samples

Infrastructure That Holds Up

• Check for configuration drift (what’s running vs. what’s documented)
• Validate security against CIS benchmarks
• Profile cross-zone traffic costs

Teams That Can Deliver

• Track if knowledge is siloed or shared
• Make engineers whiteboard – not just executives
• Test onboarding docs with new hires

The Truth About Tech Valuations

Here’s what veteran acquirers know: that “A+” security rating means nothing if the last penetration test was in 2020. The best deals I’ve seen treat due diligence like archaeology – carefully brushing away layers to reveal what’s underneath.

Look for teams that:

• Track tech debt like financial debt
• Conduct honest post-mortems
• Have PR reviews deeper than “Looks good to me”

When you find engineers who obsess over substance over labels? That’s the real unicorn – worth far more than any Kubernetes sticker on a laptop.