Enhancing M&A Success with Vendor Due Diligence Tech

min readpublished onupdated on

"In 2023, software accounted for 80 percent of all technology M&A activity, emphasizing its dominant role in shaping industry dynamics and underlining the critical importance of integrating technological assessments into M&A strategies"​[1]​. (McKinsey & Company) 

As businesses increasingly rely on sophisticated technologies to drive their operations, the need for thorough pre-sale evaluations, known as Vendor Due Diligence Tech (VDD), has become more pronounced. This preparatory step not only highlights a company's technological prowess but also ensures that potential liabilities are addressed before they can impact a deal's value. Let’s take a closer look at VDD, what it is, why more companies are relying on it, and how it works in practice. 

vendor due diligence tech
Enhancing M&A Success with Vendor Due Diligence Tech
Table of contents

What is Vendor Due Diligence Tech (VDD)? 

Vendor Due Diligence Tech refers to a comprehensive evaluation of a company's technical assets, processes, and infrastructure conducted from the perspective of the seller to present to potential buyers. This form of due diligence is aimed at providing an in-depth analysis of the technological capabilities, software health, intellectual property, cybersecurity measures, and compliance with technology-related regulations. Unlike traditional due diligence, which is typically initiated by the buyer post-offer, VDD is proactively undertaken by the seller before the sale process formally begins. 

The primary purpose of Vendor Due Diligence is to identify and rectify any potential red flags or issues that could devalue the business or derail the sale process. It allows the seller to maintain control over the pacing and structure of the sale process, presenting a clear, comprehensive view of the company's technical stature to prospective buyers. This approach not only enhances the attractiveness of the company but also streamlines negotiations, reduces time to close, and can even result in a higher sale price due to increased buyer confidence. 

Why More Companies Are Undertaking VDD to Prepare for a Sale

The shift toward technology-centric business models has made Vendor Due Diligence an essential element of the M&A process. Companies are now more than ever conducting VDD for several strategic reasons: 

1. Increasing Complexity of Technology

The rising complexity of technology within business operations necessitates a robust VDD to ensure that all elements of a company's technology stack are thoroughly evaluated. This is not merely about identifying the current state but also about understanding potential risks and accurately assessing the company in terms of scalability, particularly in markets where technological prowess is a significant factor. 

2. Risk Mitigation

The necessity of VDD is further underscored by its potential for risk mitigation. Industry surveys and reports indicate that M&A transactions involving detailed due diligence are less likely to encounter disruptive post-acquisition surprises[2]. For example, companies that have not adequately addressed cybersecurity or compliance issues may face devaluation or legal complications after the deal closes. These risks, if not managed properly, can drastically undermine the value of a transaction

3. Deal Success Rates

Moreover, comprehensive due diligence, including VDD, is often linked with higher success rates in mergers and acquisitions. Research by KPMG has highlighted that a significant majority of M&A deals fail to enhance shareholder returns, a situation that thorough and proactive due diligence could improve[3]. The early identification and resolution of potential issues help in maintaining or even increasing the value of the deal

4. Technology Integration Challenges

Deloitte points out that poor integration, especially in the realm of technology, is one of the primary reasons for the failure of M&A efforts[4]. Effective VDD provides a detailed mapping of the technology landscape, which can facilitate better planning and execution of integration strategies. This not only helps in aligning operations and systems but also ensures that the technological capabilities of the acquired company are effectively leveraged. 

5. Market Competitiveness

In today's competitive market environment, sellers are increasingly leaning towards conducting VDD to distinguish their companies. This strategic move not only highlights the company's readiness for acquisition but also showcases its technological capabilities and operational risks in a transparent manner. This level of openness is particularly appealing to informed buyers who prioritize detailed insights into a potential investment's technological infrastructure and risk profile. 

The strategic deployment of VDD not only prepares a company for a smoother transaction process but also positions it as a technologically sound and competitive entity in a crowded market. By addressing these aspects proactively, companies can better manage expectations, mitigate risks, and enhance their marketability to potential buyers. 

VDD’s with Vaultinum 

Vaultinum provides an innovative VDD Solution. This service is designed to provide a detailed analysis of a company's software environment, helping to better understand and prepare the technology landscape before entering the market

Vaultinum's approach involves three key phases, beginning with an initial technology due diligence focused on assessing the technological ecosystem thoroughly. This is followed by an enhancement phase, where identified issues are addressed, and improvements are made to enhance the company's technological stature.  Finally, a Vendor Due Diligence report is built in close collaboration with technical and business teams.   

Initial Technology Due Diligence (Buy-Side Focus): This phase serves as a preliminary deep dive into the company's technological infrastructure, covering aspects from cybersecurity and software development to GDPR compliance and intellectual property management. The insights gleaned from this stage are key to identifying and rectifying potential vulnerabilities, ensuring that the company’s technological base is solid before it is showcased to potential buyers. 

Enhancement Phase: Utilizing data from the initial assessments, Vaultinum identifies areas for technological enhancements. This proactive improvement of technology practices ensures that by the time the company enters the VDD phase, its technology stack is not only optimized but also aligned with industry best practices and standards. This step is vital as it directly contributes to elevating the company's market value and appeal in the eyes of potential acquirers. 

VDD Report Preparation and Final Report: Building on the foundation set by the Tech Due Diligence and enhancement phases, Vaultinum collaborates closely with the company's technical and M&A teams to develop a robust Vendor Due Diligence Report. This report not only documents the company's technological prowess but also strategically emphasizes areas critical for scalability, security, and compliance.  

The final VDD report is a comprehensive portrayal of the company's technological capabilities and readiness, serving as a key document in the negotiation phase with potential buyers. 


In conclusion, Vendor Tech Due Diligence transcends its role as a preliminary checklist item to become a cornerstone of strategic planning for companies aiming to thrive in a competitive M&A environment.  

Moreover, in an era where technology integration is pivotal to business scalability and efficiency, VDD equips sellers with the necessary tools to identify and address potential challenges before they become stumbling blocks in the negotiation process. By doing so, companies can avoid the pitfalls that typically undermine deal values, such as unexpected compliance issues or integration obstacles, thereby safeguarding their market competitiveness. 

For companies looking forward, the message is clear: the depth and quality of your due diligence can decisively influence the trajectory of your corporate growth and the realization of your strategic goals. 

Contact us for more information on Tech VDD

[1] https://www.mckinsey.com/capabilities/m-and-a/our-insights/thoughtful-m-and-a-strategies-are-key-to-growth-in-tech-media-and-telecom

[2] https://www2.deloitte.com/us/en/blog/mergers-acquisitions-insights-news/2023/mergers-acquisitions-due-diligence.html and https://www.foley.com/insights/publications/2023/08/importance-due-diligence-m-a-transactions/ [3] https://kpmg.com/xx/en/home/services/advisory/deal-advisory.html

[4] https://www2.deloitte.com/us/en/insights/industry/technology/software-mergers-acquisitions-value.html

Kristin Avon Senior Legal Officer Vaultinum
Kristin A.Kristin is a registered US attorney specializing in the areas of IP and technology law. She is a member of Vaultinum’s Strategy and Legal Commissions charged with overseeing and implementing the policies and processes related to the protection of digital assets.

Recommended for you