How do you run technical due diligence in an acquisition?

Question

Accepted Answer

Technical due diligence is a **structured risk assessment** of a target's technology, team, and how it will integrate. The goal is to surface what could break the deal's value and to plan the integration realistically before money changes hands.

## A diligence checklist

```text
ASSESS THE TARGET ACROSS:
- Architecture & scalability: will it hold under our growth?
- Code quality & technical debt: hidden cost to maintain/extend
- Team: key people, retention risk, knowledge concentration
- Security & compliance: breaches, gaps, liabilities
- IP & licensing: ownership, open-source risk
- Integration cost: how hard to merge with our stack/org
```

The biggest risks are often **people and integration**, not the code itself.

## Concrete example

Diligence on an acquisition reveals solid architecture but a single engineer holding all the critical knowledge and an aggressive use of restrictive open-source licenses, so the CTO advises retention packages and a license remediation plan as deal conditions.

## Trade-offs and pitfalls

- **Pitfall:** focusing only on code and missing people/retention and integration risk.
- **Pitfall:** underestimating integration cost, which can erase the deal's value.
- Diligence is time-boxed; you must prioritize the risks that most affect deal value.

## Why it matters

Acquisitions frequently fail to deliver value because of underestimated technical and integration risk.

Rigorous due diligence protects the company from buying hidden liabilities and grounds the price and plan in reality.

As a deal advisor, the CTO's judgment here can prevent a very expensive mistake.