Technical due diligence
Technical due diligence is an audit, investigation or review performed on a tech company (i.e. a company that is tech native, meaning that its core products or services are digital).
In the investment decision process for tech companies, technical due diligence replaces the role of the commercial and operational due diligence. The rationale being that for tech companies, other topics are important in order to evaluate the possible risks and opportunities for the target company.
Tech due diligence includes an evaluation of the target’s tech strategy, product and/or services, IT architecture and infrastructure, IT processes and security, tech organisation and software development lifecycle and the tech financials.
A technical due diligence is better suited for tech companies, as it captures the topics that traditional commercial due diligence would miss, including:
Like traditional due diligence, technical due diligence requires access to certain information to be successful. The process is similar to that of commercial due diligence.
With a starting point in the investment thesis and key questions, technical due diligence includes a thorough evaluation of the target. This includes its tech strategy, product and/or services, IT architecture and infrastructure, IT processes and security, tech organisation and software development lifecycle and the tech financials.
The foundation of technical due diligence lies in the investment thesis and the underlying key questions that are specific for the acquisition.
The foundation of the technical due diligence analysis lies in the investment thesis that is provided and agreed upon together with the acquiring firm. It entails the main rationale/hypothesis that should be tested.
The investment thesis is split into several key questions which tests different aspects of the thesis. The key questions are often developed in collaboration with Implement, as we know from experience which issues are important to stress test.
In addition to an overall assessment of the target company from a technical viewpoint, the answers to the key questions and a validation if they support the investment thesis are the main deliverables.
Company “X” is interested in investing in “Target” with the rationale of increasing market shares and gaining knowledge in their technology domain.
A validation of how well the technical and product strategy is aligned with the overall business strategy
Are products kept up to date and is the underlaying architecture scalable and modern?
How does the current organisational setup support operations and processes?
Are past and planned tech expenditures in line with the strategy and investment thesis?
Does the infrastructure in place support current processes as well as future expansions?
How secure is the target in terms of its capability to withstand an unintentional loss of information?
What IT documentation is in place, available and of good quality?
2. What are the security procedures and processes? (I.e. disaster recovery, penetration tests, FOSS scans etc.)
Typical technical due diligence at Implement takes around 2-3 weeks and consists of desk research as well as interviews with the target and industry experts.
A core team experienced in technical due diligence is complemented by consultants with M&A or industry experience, and subject matter experts on the target industry are consulted.
An introduction to Technical due DILIGENCE
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