DealMakers - Q3 2025 (released November 2025)
The perils of oversimplifying technology due diligence in acquisitions
by Rakhee Dullabh and Ridwaan Boda​​
Whether your company makes food, builds houses, manages logistics, sells products or provides services, your critical functions run on information technology. As such, it is no longer meaningful to draw a hard line between “tech” and “non-tech” businesses. In most businesses, sales and marketing depend on digital channels, operations rely on data and automation, finance sits on cloud platforms, and HR manages people through software. In practice, nearly every business is a technology business, and in transactions, technology should not be viewed as a side consideration – it is the engine of value and the source of risk. Yet in many acquisitions, especially by non-tech acquirers, technology due diligence remains dangerously superficial. Too many acquirers treat it as a checklist, while missing the deeper questions that determine whether a target’s technology is and can remain compliant, can scale, and can integrate easily, seamlessly and without undue expense.
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IT as the business backbone
Modern enterprises are stitched together by technology. Cloud computing hosts enterprise applications; SaaS tools drive collaboration and CRM; mobile apps connect staff and customers; APIs integrate partners and supply chains. Even seemingly simple functions (like invoicing, timekeeping and customer support) operate on digital rails. The more essential these systems become, the greater the legal and operational exposure if they fail, are misused, or are implemented without appropriate governance.
Rakhee Dullabh
Ridwaan Boda
What to consider in M&A deals
The traditional, superficial approach to technology due diligence is fraught with shortcomings and, given the reliance that a business places on technology as part of its day-to-day operations, a simple glance at technology contracts is insufficient for a company to mitigate the risks.
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1) How clean is the target’s technology stack?
Superficial diligence often stops at verifying that systems “work.” But functioning systems can conceal serious structural weaknesses. This, in turn, creates a myriad of risks, including integration paralysis (especially where the target has legacy and fragmented systems), vendor lock-in, hidden fragility, and valuation mismatch.
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2) Overlooking cyber and data risks
Many acquirers still regard cybersecurity as an IT hygiene issue. In reality, it is a regulatory, financial and reputational risk zone, giving rise to issues such as inherited vulnerabilities, regulatory penalties, customer attrition (trust is easily lost by clients where cyber breaches occur), and operational disruption.
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3) Underestimating technical debt
Every system carries “technical debt”, i.e. the accumulated shortcuts and legacy code that slow innovation and inflate maintenance costs. The risk to the acquirer includes unexpected capital expenditure, erosion of deal value (especially where high maintenance costs affect the EBITDA or end-of-support systems require replacement at significant cost), delayed synergies, and innovation bottlenecks.
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4) Ignoring intellectual property (IP) traps
Technology value rests on ownership and control. Yet hurried diligence often stops at confirming that “the company owns its IP” and does not consider the hidden risks, such as unknown ownership claims (by staff or contractors), open source contamination, AI and data disputes, and jurisdictional misalignment.
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5) Misjudging integration and scalability
A target’s systems may work well in isolation, but fail under the scale or compliance expectations of a larger enterprise. Most due diligence processes do not fully consider the risks in relation to integration costs, business disruption, compliance risks and cultural resistance.
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6) The false economy of “light touch” diligence
Under deal pressure, acquirers often scale back on the diligence scope or timeline, especially on technology. This short-term saving often becomes long-term pain, especially where deal fatigue and distractions mean that hidden liabilities emerge after the deal is done, with an inability to renegotiate post-closing, resulting in reputational fallout.
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A strategic approach to due diligence
Savvy acquirers are shifting from transactional to strategic technology diligence, treating it as a lens into capability, not just compliance. A well-structured technology due diligence mitigates key risks by assessing the architecture – which reveals scalability and technical debt before it becomes a capital burden – and the cybersecurity posture of the target, with a view to quantifying its exposure and defining remediation budgets pre-closing. It also assesses the data governance framework by identifying unlawful or high-risk data flows early; the intellectual property ownership position, ensuring that the target has clear title to all software, datasets, and AI models; integration readiness (including predicting real integration cost and time); and the technical leadership, in order to gauge whether the engineering culture can deliver on post-deal strategies.
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Changing perspective
The ultimate goal of a well-structured and comprehensive technology due diligence is to transform the technology due diligence from a cost centre exercise into a predictive risk and value tool. Oversimplifying technology due diligence may save days on a timeline, but can cost years of recovery. In the digital era, the real liabilities are embedded not in balance sheets, but in codebases, data and dependencies.
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For any acquirer, understanding the target’s technology landscape is no longer optional. It is the difference between buying an asset that accelerates growth and inheriting a liability that erodes it.
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Boda is Head of Department and Dullabh an Executive: Technology, Media and Telecommunications | ENS
