Technology Due Diligence: Critical areas to evaluate and where they often fail.

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Technology Due Diligence (TDD) Reviews are often performed when companies are merging and/or going through an acquisition, as a buyer or seller (M&A transactions), or during Private Equity (PE) investments. TDD is also beneficial for any company that detects the need for a corporate-wide technology review. Sometimes an organization’s technology stack is simply outdated, and management is ready to bring it up to par with current best practices. 1Rivet’s TDD Review process involves evaluating all aspects of a company’s technical and business procedures, like what software applications they use to complete their daily business functions, or if they’re being exposed to critical cyber threats and vulnerabilities. This discovery process helps companies assess and mitigate any risks, as well as identify potential areas for improvement, and this article will discuss the TDD process within the context of M&A transactions or PE investments.

Carrying out this review ensures that technical operations are following best practices and helps pinpoint areas where there could be room for value creation and where technical debt has been mounting over time indicating future costs or performance risk. While this process is very personalized to each unique business and its enterprise landscape, there are three key outcomes to focus on during the assessment. Your technical due diligence deliverables should include evaluating operational maturity, identifying risks and red flags, and creating an investment and opportunities roadmap.

Many diligence assessors have only ever done diligence and IT Strategy and therefore lack the necessary IT program and project delivery skills that can really only be obtained from being in the trenches of long and complex implementations. This is the single most critical failure of IT due diligence and puts a significant number of deals in jeopardy every year.


Assessing Operational Maturity

An operational maturity assessment is conducted to identify scalability and sophistication, relative to the maturity of the overall business. Criteria like Budgeting, IT Strategy, Cybersecurity, Infrastructure, long-term viability of business applications, and customer support systems are the foundational tools and technologies the organization relies on to grow and thrive. The goal is to identify areas of strength, and those requiring investment, and to create a roadmap of quick wins vs. day 2 focus areas for optimization.


Identifying Risks and Red Flags

The risk review step in the technical due diligence process review looks at different functions of the organization to identify any risks that could potentially impede or derail the overall deal from closing. Peripheral risks are identified during the Operational Maturity assessment but this phase dives much deeper into any areas of concern. As a result, any major red flags are uncovered, which are items that could expose the company to significant regulatory, legal, financial, or implementation challenges post-close. It all comes down to proactive identification, so the organization can mitigate risk before major issues develop down the line. Anything that puts the value of the deal in jeopardy needs to be looked at with caution.


Creating an Investment and Opportunities Roadmap

After evaluating Operational Maturity and identifying major red flags, the technology due diligence team’s next focus area is to make their findings ‘real’ by recommending initiatives that address gaps and capture the value dealmakers are looking to achieve. Diligence teams often struggle with or skip this step if they are not also implementation specialists. The investment and opportunities roadmap is especially important to take into account if the deal is large and complex in nature.  It is a critical, actionable plan for capturing value on day 1 the deal closes, and sets up the organization for future cost reduction and revenue growth thereafter.


Partner with 1Rivet Today for Your Technical Due Diligence Review

1Rivet’s core principle is ensuring our client’s success. We have a deep start-to-finish merger, acquisition, and divestiture experience that will help your deal close with speed, accuracy, and confidence. Furthermore, we will stand by our diligence recommendations and see them through until the very end of post-implementation support.  Contact us today to schedule a free consultation and learn how we can partner with you in your technical due diligence review.


Derek Swank

A global delivery executive, Derek has nearly 15 years experience as a client services and engagement lead across a variety of industries including financial services, energy services, automotive and technology.