Why Rarity Over Quantity in Tech Due Diligence Signals M&A Success: A Consultant’s Deep Dive

When one tech company buys another, a thorough technical review is essential. I want to share why a target company’s approach to this challenge can either raise red flags or signal a smart acquisition.

The Core Idea: Rare Tech Assets vs. Common Ones

In tech due diligence, we often face a choice: do we value rare, unique tech—even if it’s a bit rough around the edges—or do we go for common but polished components? In my work as an M&A consultant, I’ve found that rarity—like proprietary algorithms, unique data, or patented tech—often matters more than easily replaceable, high-grade assets. This isn’t just a hunch; it’s a strategic call that can make or break a deal.

What Makes Tech “Rare”?

Rarity isn’t about age or scarcity alone. It’s about uniqueness and competitive edge. A company might have an older system—think of it as a “low-grade rarity”—that holds priceless proprietary logic or data. For example, I once reviewed a startup with code written in an obscure language. On the surface, it looked outdated. But it included predictive analytics algorithms that were years ahead of rivals. That rare find gave the buyer an advantage no common code could match.

Why Overlooking Rarity Is Risky

Some buyers focus only on scalability and modern frameworks, writing off older systems as technical debt. But in one deal, a target had a custom-built database engine that processed real-time data with unmatched efficiency. It wasn’t cloud-native, but its rarity made it a clear “go” for acquisition. We suggested modernizing it after the deal, keeping the rare core while improving its fit. Skipping this would’ve been a mistake—competitors couldn’t easily copy it.

Tech Due Diligence: Checking Code Quality and Scalability

Technical due diligence means carefully reviewing code quality, architecture, and scalability. Here’s how rarity plays into each area.

Code Quality: Look Past the Surface

A code audit isn’t just about clean, well-documented code. It’s about spotting rare gems. A target might have messy code (low grade) but include a unique module that solves a critical problem. In one review, we found a poorly documented Python script using a novel machine learning approach for fraud detection. Despite its rough edges, its rarity made it priceless. My advice: Hunt for innovation and uniqueness, not just perfect code.

# Example of a rare algorithm snippet from a due diligence audit
def rare_fraud_detection(data):
# Proprietary method using unsupervised learning
clusters = custom_clustering(data)
return identify_anomalies(clusters)

Scalability: Blend Rarity with Growth

Scalability can clash with rarity. Common, high-grade tech like microservices is scalable but replaceable. Rare assets might not scale easily but can be game-changers. In a recent deal, a target had a monolithic app with rare logic for supply chain optimization. We suggested containerizing it and scaling step by step, preserving the rare core. For example, use tools like Kubernetes to update rare systems without losing what makes them special.

Risk Analysis: Weighing the Pros and Cons

Risk assessment means balancing rarity’s benefits against potential downsides. Low-grade rarities might have security gaps or maintenance headaches. But if the rarity offers a strong advantage—like exclusive data or patents—the risk could be worth it. One target had a rare encryption method coded in an older language. It reduced acquisition risk by providing unique data protection. Bottom line: Decide if the rarity lowers or raises overall tech risk.

Practical Tips for Buyers

From my consulting experience, here’s how to evaluate rarity in M&A due diligence:

• Spot Rare Assets Early: Use automated tools to find unique code, patents, or data. Tools like Snyk or Black Duck help, but human insight is key for context.
• Measure Rarity’s Impact: Gauge the competitive edge—like how much revenue or market share the rare tech could bring. In one case, a rare AI model was worth 30% of the acquisition price.
• Prepare for Upgrades: Rare assets often need tweaks. Create a post-acquisition plan to boost scalability without losing uniqueness. For instance, refactor rare code for cloud use.
• Avoid Hidden Flaws: Watch for “details” like licensing snags or unsupported dependencies. Steer clear of rarities with unfixable issues.

Final Thoughts: Rarity as a Deal-Maker

In tech due diligence, favoring rarity over commonality can unlock real value. High-grade, common tech keeps things running, but rare assets offer defendable advantages that fuel long-term growth. I’ve seen deals succeed when buyers bet on “low-grade rarities”—investing in their potential instead of dismissing them. In tech, uniqueness often beats perfection. Focus on what makes a target one-of-a-kind, and you’ll approach M&A with greater confidence.

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