3 Tips for M&A Technology Due Diligence

Performing due diligence is a must during a merger and acquisition (M&A) deal. Pre-diligence coaching can help prospective buyers, and sellers get the most from the negotiation process. This article will cover everything you need to know about pre-diligence coaching, including three tips for successful M&A technology due diligence. 

What Is Pre-Diligence Coaching?

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In M&A transactions, due diligence is a thorough investigation of a target company before a potential deal is complete. Due diligence typically spans a wide range of domains, including the company’s financial statements, contracts, liabilities, intellectual property, and personnel, among others.

The due diligence process often consists of multiple stages. During preliminary due diligence, the goal is to identify any red flags or major issues the buyer needs to know about. These concerns may cause the buyer to significantly revise the purchase offer or even back out of the deal entirely.

When it comes to technology businesses and investments, due diligence is especially important. M&A software due diligence involves a robust technical assessment of the target company’s software and technology products, evaluating them for any legal questions or problems with their security and quality. M&A technical due diligence may examine a company’s long-term strategy for its software products, as well as the people, processes, and tech stacks involved in software development.

However, not every business is necessarily prepared for M&A tech diligence. Some companies are new to the acquisition due diligence process, while others lack the in-house technical knowledge to do a proper assessment of the target company. 

For this reason, many organizations seek the assistance of a third-party expert for pre-diligence coaching. Pre-diligence coaching is a service that helps prospective buyers and sellers achieve a successful due diligence process. Whether you’re on the buy side or sell side of an M&A transaction, pre-diligence coaching can identify gaps and opportunities to get the best deal possible. 

Benefits of Pre-Diligence Coaching for the Buy Side

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The benefits of M&A technology due diligence for prospective buyers include:

  • Gaining complete knowledge: Pre-diligence coaching and preparation assist buyers in identifying the full potential of their investment, both positive and negative. Crucially, it can help uncover any gaps or risks that may be associated with closing the deal.
  • Estimating value: Pre-diligence coaching helps businesses understand if the target company and its products will add value to their portfolio or not. When buyers conduct due diligence on a competitor, for example, they should ask whether the total addressable market (TAM) for their combined products and services is large enough to warrant the investment.
  • Highlighting issues: Pre-diligence coaching helps potential buyers understand what to look for during the M&A technology diligence process. For example, if you discover that one of the company’s software projects has significant technical debt, you can more accurately assess its value based on the amount of product development required.

Benefits of Pre-Diligence Coaching for the Sell Side

Pre-diligence coaching has benefits for prospective sellers as well, including:

  • Better preparation: Going through pre-diligence coaching with guidance from a team of experts means that company executives can more confidently and successfully answer the buyer’s questions. Pre-diligence coaching can also provide insights into what to expect in the M&A negotiation process, enabling potential sellers to negotiate more favorable terms.
  • Stronger selling points: Pre-diligence coaching can help businesses understand how to best showcase the value of their current products and technologies. Companies that engage in pre-diligence coaching know how to distinguish themselves with the right key value propositions, helping attract buyers and increase their exit value.
  • Greater awareness: With pre-diligence coaching, companies can stay up-to-date on current market trends and industry changes, allowing them to position themselves more effectively and capitalize on the right opportunities. Pre-diligence coaching and the due diligence process can also help companies understand the buyer’s objectives and expectations, improving the chances of a successful sale and a smoother transition to preserve business continuity.

Check out leaders from KMS Technology and SEG discuss trends in the software industry and how companies can scale with the right partner.

3 Tips for Pre-Diligence Coaching for Technology M&A Transactions

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Are you thinking about pre-diligence coaching for an upcoming M&A transaction? This section will go over three essential tips to get started.

1. Start prepping as soon as possible

The due diligence process itself can take between 6 to 12 weeks on average. The sooner you can start planning and gathering critical information, the more likely it is that the process will be smooth and successful. This is true not only for the company you’re negotiating with, but also with your choice of pre-diligence coaching partner.

2. Get ready for lots of documentation

Due diligence can be overwhelming in terms of the sheer amount of paperwork. The documentation involved in due diligence includes everything from a company’s software assets and tech stack to financial and legal information about litigation, taxes, and audits. Buyers and sellers often use virtual data rooms (VDRs), which are secure online repositories for viewing sensitive M&A documents. At the end of the process, buyers produce due diligence reports that summarize their findings and make recommendations to the executive team.

3. Consider a technology consulting partner

M&A deals and the due diligence process can be overwhelming for buyers and sellers alike. More and more software companies and private equity firms are looking for external advisors or third-party consultants for guidance with due diligence. Getting an outside point of view from a technology consulting partner can provide key assistance and insights that would otherwise have been missed.

How KMS Can Help with M&A Technology Due Diligence Free Project Evaluation CTA

If you’re considering getting help with technology due diligence in mergers and acquisitions, it’s important to select the right partner—a partner like KMS Technology.

KMS has performed over 70 assessments for companies entering the M&A process, helping our clients achieve $11.8 billion in acquisition value. We offer a tailor-made process and advice designed for your specific business needs. Our team of experts has over a decade of experience consulting for software companies and M&A firms.

We offer a full suite of technical assessment services for M&A deals, including reviews of:

  • Software architecture, code, and infrastructure, including technical debt levels
  • Process and tooling
  • Security and performance
  • Organization and leadership structure

Ready to learn how KMS can help with pre-diligence coaching for your next M&A transaction? Get in touch with our team today for a free consultation about your business needs and objectives.

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