3 Key Trends Driving M&A in 2022
How to Choose the Right Technology Due Diligence Provider?
With technology and software being at the heart of businesses’ daily activities nowadays, it is no surprise to see that Tech M&As have been on the rise over the past years. And with cyber threats also on the rise, it is now crucial for private equity investors, who already conduct technology due diligence on any potential acquisition, to go one step further and include a Technology Assessment in their processes. A Technology Due Diligence is a comprehensive review of the target company's technology infrastructure, systems, and processes. A technology due diligence provider can help you assess the value of the technology and software assets, identify any risks or issues, and determine whether the technology is aligned with your investment strategy.
Choosing the right technology due diligence provider is critical, to ensure a successful investment. Here are some key factors to consider when selecting a provider.
Expertise in Source Code Scanning
One of the most important aspects of technology due diligence is the review of the target company's source code. Source code is the underlying programming language used to build software applications, and it can reveal a lot about the quality and security of the technology. A thorough source code review can identify potential issues with scalability, maintainability, intellectual property (linked to open-source licenses) and security, and it can help you determine whether the technology is worth investing in.
When choosing a technology due diligence provider, look for one that has expertise in source code scanning. This means they have the tools, processes, and knowledge to thoroughly review the target company's source code and identify any potential issues. They should be able to provide you with a detailed report that outlines the findings of the source code review, including any risks or issues that were identified.
Focus on Cybersecurity
Cybersecurity is a critical concern for any technology investment. During M&As, companies are more likely to be cyber-attacked, even more so if the companies involved have weak cybersecurity. So, it’s important to audit the state of the target’s cybersecurity ahead of the deal, to avoid significant financial and reputational damage, that will inevitably follow a cyberattack. When selecting a technology due diligence provider, make sure they have a strong focus on cybersecurity, that includes source code scanning for cyber vulnerabilities as well as IT infrastructure auditing.
The chosen provider should have expertise in assessing the target company's cybersecurity posture and identifying any potential vulnerabilities or risks. They should be able to review the target company's policies, procedures, and controls related to cybersecurity, and they should be able to provide you with concrete recommendations for improving the overall cybersecurity posture of the technology.
Include a review of open source software usage
When choosing a technology due diligence provider, it is important to look for a company that has expertise in evaluating intellectual property risks associated with the use of open source software. This may involve a thorough analysis of the target company's software stack, including any third-party open source components, to identify potential licensing and compliance issues. A strong provider should also be able to provide guidance on best practices for managing open source software, including proper attribution and license compliance, to help mitigate any legal risks. Overall, a thorough evaluation of open source software usage can help identify potential legal risks that may impact the value and success of a potential acquisition or investment.
Offer to review scalability and maintainability issues in the code
Investors want to know if the software that delivers perfectly now will still do so in 5 years' time, when the number of users will have grown, and the technology will have evolved. A good technology due diligence provider will include a review of the scalability and maintainability of the software in their methodology, to provide the investor will that reassurance. A source code scanner can help identify potential flaws in the development team's coding practices, such as inconsistent code formatting, lack of documentation, or improper use of libraries and frameworks or low rate of testing. These issues can impact the maintainability of the codebase and increase the risk of technical debt, making it more difficult and expensive to maintain and update the software in the long run. Additionally, a source code scanner can help evaluate the risk of losing knowledge if key developers were to leave the company. This information can help inform decisions around knowledge transfer and succession planning, ensuring that the business can continue to operate smoothly even in the event of key personnel changes.
Experience in the Legal and Tech Industry
Another important factor to consider when selecting a technology due diligence provider is their experience in the legal and tech industry. Look for a provider that has a team of experienced professionals with backgrounds in both law and technology. This will ensure that they have the expertise to identify any legal or regulatory risks associated with the technology, as well as the technical expertise to thoroughly review the technology infrastructure, systems, and processes.
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