Why ‘Penny’ Problems in Code Quality Will Kill Your M&A Deal: A Technical Due Diligence Deep Dive

How Tiny Code Flaws Torpedo Million-Dollar Acquisitions

When buying a tech company, that excited “aha!” moment often fades fast during code review. Here’s what keeps tech buyers awake at night: those small, persistent code quality issues that suddenly explode during scaling. After advising on 50+ acquisitions, I’ve learned one truth – companies don’t fail because of big dramatic errors. They bleed out through thousands of little cuts.

Why Your Code’s Loose Change Could Cost Millions

Think of technical debt like coins jingling in a developer’s pocket. At first, a few pennies seem harmless. Then one day you realize you’re carrying 50 pounds of copper. Let me show you real damage:

The Real Price of “Move Fast” Culture

// Before refactoring
function processTransaction(amount) {
// Hard-coded rounding to nearest cent
return Math.round(amount * 100) / 100;
}

// After currency-agnostic update
function processTransaction(amount, currency) {
const decimals = currency === 'JPY' ? 0 : 2;
return Number(amount.toFixed(decimals));
}

This “quick fix” from 2017 worked perfectly… until expansion to Japan. The penny problem blew up when transactions required zero decimal places. Suddenly, financial reports were off by millions.

What Actually Matters During Tech Due Diligence

1. Code Health Check: Spotting Danger Early

Our audit scoring works like a medical exam:

• Critical flaws (5x weight): Security gaps, systems that crash if one server fails
• Major issues (3x): Code that can’t be modified without breaking everything
• Warning signs (2x): Copy-pasted code blocks, tests missing key scenarios
• Minor notes (1x): Inconsistent formatting, small tech debt todos

2. Future-Proofing: Can This Handle Growth?

A fintech startup aced their current load tests (10K transactions/sec). But their Redis setup?

“Sharding strategy hits hard limits at 2X current volume. Scaling further would require rebuilding from scratch.”

Their “penny” became a $3M infrastructure rewrite.

3. Dependency Time Bombs

Outdated tech stacks worry buyers like expired ingredients scare chefs:

• Ancient Python 2 code with no migration path
• “Borrowed” AGPL code putting the whole IP at risk
• Cloud designs that make switching providers impossibly expensive

4. The Bus Factor: Who Really Knows This Code?

Run this command before buying any team:

git log --since='1 year' --pretty=format:'%an' | sort | uniq -c | sort -nr

If one person wrote 40%+ of the code, what happens when they leave? I’ve seen deals collapse over this single metric.

Your Due Diligence Survival Kit

• Realistic timeline: Good audits take 60-90 days – rush this and you’ll pay later
• Deal-breakers: <20% test coverage, frequent production outages
• Negotiation power: Use audit findings to justify price adjustments or payment terms

The $120M Deal That Crashed Over Code Pennies

We once stopped an acquisition cold because:

• Payment system stored bank logins in a public S3 bucket
• Core databases ran on MySQL versions from 2013
• Half their API endpoints had zero security checks

Fixing it would cost more than the company’s annual revenue.

What Smart Teams Do Differently

These practices often add 15-30% to valuations:

• Automated security updates that run daily
• Infrastructure rebuilt from scratch in under 4 hours
• Monitoring that tracks real business outcomes (not just server stats)

Don’t Let Code Pennies Sink Your Deal

Technical due diligence isn’t about perfection – it’s about risk awareness. Those minor code issues? They’re tripwires waiting for growth pressure. By understanding a target’s true tech health, you can:

• Walk away from ticking time bombs
• Budget accurately for necessary fixes
• Reward truly well-built systems with premium offers

In acquisition talks, well-maintained code speaks louder than spreadsheets.

Related Resources

You might also find these related articles helpful:

• How to Write a Technical Book About Currency Evolution: From Penny Debates to Published Authority – Why Writing a Technical Book Becomes Your Expertise Lighthouse Let’s be honest – nothing positions you as th…
• Optimizing AAA Game Engines: Performance Lessons from the Penny Phase-Out – In AAA Game Development, Performance and Efficiency Are Everything After fifteen years tuning game engines at studios li…
• Mastering Jefferson Nickels Full Steps: Advanced Grading Techniques for Serious Collectors – Advanced Jefferson Nickel Grading Techniques Only Experts Know After twenty years specializing in Jefferson Nickels and …