Required Inputs
- Target Company: Name and brief description of the acquisition target.
- Deal Thesis: Strategic rationale for the acquisition (talent, technology, market, product).
- Transaction Type: Buy-side, sell-side, or merger.
- Acquirer Technology Stack: High-level description of the acquirer's current technology environment.
- Available Access: What materials/access are available (data room, codebase, interviews, documentation).
- Timeline: DD period duration and key milestones.
Execution Steps
1. Scope Definition and Planning
Define DD scope based on deal thesis. Technology DD covers seven workstreams:
| Workstream | Key Questions | Priority by Deal Thesis |
|---|---|---|
| Infrastructure | Hosting, cloud, networking, DR, cost structure | All deals |
| Application Architecture | Patterns, coupling, scalability, modernization needs | Product/technology acqui-hires |
| Code Quality & Tech Debt | Maintainability, test coverage, dependency health | All deals |
| Data & Analytics | Data assets, quality, architecture, privacy compliance | Data-driven acquisitions |
| Security & Compliance | Vulnerabilities, access controls, certifications, breach history | All deals |
| Team & Process | Skills, processes, bus factor, DevOps maturity | Talent acquisitions |
| IP & Proprietary Technology | Patents, trade secrets, open-source exposure, licensing | Technology acquisitions |
Access request list (send to target within 48 hours):
- System architecture diagrams and documentation
- Codebase access (read-only repository access or code samples)
- Infrastructure inventory and cloud spend reports (12 months)
- Security audit reports and penetration test results (last 2 years)
- Incident logs and post-mortem reports (last 12 months)
- CI/CD pipeline configuration and deployment history
- Team org chart with roles, tenure, and skill profiles
- IP filings, patent portfolio, and open-source dependency manifests
- SLA/SLO dashboards and uptime reports
- Third-party vendor contracts and licensing agreements
2. Infrastructure Assessment
Evaluate the target's infrastructure foundation.
Cloud & Hosting Evaluation:
| Dimension | Assessment Criteria | Maturity Level (1-5) |
|---|---|---|
| Hosting model | On-premises / colocation / single cloud / multi-cloud | |
| Infrastructure as Code | Manual provisioning → fully automated IaC (Terraform, Pulumi) | |
| Environment parity | Dev/staging/prod consistency and isolation | |
| Disaster recovery | RPO/RTO targets, tested failover procedures | |
| Cost management | Tagging, reserved instances, right-sizing, FinOps practices | |
| Networking | VPC design, CDN, DNS, load balancing, edge strategy | |
| Monitoring | Infrastructure monitoring coverage and alerting |
Cloud Spend Analysis:
- Monthly cloud spend trend (12 months): growth rate vs. revenue growth rate
- Top 10 cost drivers by service
- Reserved/committed vs. on-demand spend ratio
- Projected spend at 2x and 5x current load
Cloud Readiness Score (if on-premises):
| Factor | Weight | Score (1-5) | Weighted |
|---|---|---|---|
| Application cloud-native readiness | 25% | ||
| Data migration complexity | 20% | ||
| Regulatory/compliance constraints | 15% | ||
| Network dependency on physical location | 15% | ||
| Team cloud skills | 15% | ||
| Third-party integration portability | 10% | ||
| Total | 100% | /5.0 |
3. Application Architecture Assessment
Evaluate architecture patterns, fitness, and modernization needs.
Architecture Pattern Classification:
| Pattern | Strengths | Risks to Assess |
|---|---|---|
| Monolith | Simple deployment, data consistency | Scaling limits, deployment coupling, team bottlenecks |
| Modular Monolith | Bounded contexts, simpler ops than microservices | Module coupling integrity, migration readiness |
| Microservices | Independent scaling/deployment, team autonomy | Distributed complexity, data consistency, operational overhead |
| Serverless | Auto-scaling, no server management | Vendor lock-in, cold starts, observability gaps |
| Hybrid | Pragmatic evolution | Inconsistent patterns, integration complexity |
Architecture Quality Scorecard (the "-ilities"):
| Dimension | Assessment Criteria | Score (1-5) | Evidence |
|---|---|---|---|
| Scalability | Horizontal scaling capability, statelessness, async processing | ||
| Reliability | Fault tolerance, graceful degradation, chaos engineering readiness | ||
| Maintainability | Code modularity, documentation, onboarding time for new devs | ||
| Security | Defense in depth, secure defaults, input validation, encryption | ||
| Observability | Logging, metrics, tracing, alerting coverage | ||
| Performance | Response times, throughput, resource efficiency | ||
| Extensibility | Plugin/API extensibility, configuration flexibility |
Scalability Stress Analysis:
| Metric | Current State | 2x Load | 5x Load | 10x Load | Bottleneck |
|---|---|---|---|---|---|
| Requests/sec | |||||
| Database connections | |||||
| Storage growth/month | |||||
| Concurrent users | |||||
| Data processing volume |
4. Code Quality and Technical Debt Quantification
Code Analysis Metrics:
| Metric | Target | Actual | Assessment |
|---|---|---|---|
| Test coverage (unit) | >70% | ||
| Test coverage (integration) | >40% | ||
| Cyclomatic complexity (avg) | <10 | ||
| Code duplication | <5% | ||
| Dependency freshness | <6 months behind | ||
| Known vulnerability count (CVEs) | 0 critical, 0 high | ||
| Documentation coverage | >60% public APIs | ||
| Build time | <10 minutes | ||
| Deployment frequency | Daily or better |
Technical Debt Classification:
| Category | Description | Quantification Method |
|---|---|---|
| Deliberate-Prudent | Conscious trade-offs with documented rationale | Estimated remediation cost |
| Deliberate-Reckless | Known shortcuts without justification | Estimated remediation cost + ongoing cost of delay |
| Accidental-Prudent | Better approach discovered after implementation | Migration effort estimate |
| Accidental-Reckless | Poor practices due to lack of knowledge | Rewrite effort estimate |
Technical Debt Quantification Formula:
Total Tech Debt Cost = Sum of (Remediation Effort in person-months x Loaded Cost per person-month)
Tech Debt Ratio = Tech Debt Cost / Total Codebase Rewrite Cost
- Tech Debt Ratio < 5%: Healthy
- Tech Debt Ratio 5-15%: Manageable with dedicated allocation
- Tech Debt Ratio 15-30%: Significant; requires remediation roadmap
- Tech Debt Ratio > 30%: Potential deal breaker; may warrant rewrite assessment
Dependency Risk Assessment:
- Count of direct and transitive dependencies
- Licenses: copyleft (GPL) vs. permissive (MIT, Apache) -- flag copyleft in commercial products
- Abandoned dependencies (no commits in 12+ months)
- Single-maintainer critical dependencies
- Known CVEs by severity
5. Security Posture Review
Security Assessment Matrix:
| Domain | Key Controls | Status | Finding Severity |
|---|---|---|---|
| Authentication | MFA, SSO, password policy, session management | ||
| Authorization | RBAC/ABAC, least privilege, segregation of duties | ||
| Data Protection | Encryption at rest and in transit, key management | ||
| Network Security | Firewall rules, segmentation, DDoS protection | ||
| Application Security | OWASP Top 10, SAST/DAST in CI, dependency scanning | ||
| Compliance | SOC 2, ISO 27001, GDPR, HIPAA, PCI-DSS (as applicable) | ||
| Incident Response | IR plan, breach notification, forensic capability | ||
| Access Management | Provisioning/deprovisioning, access reviews, privileged access | ||
| Vulnerability Management | Scanning cadence, patching SLAs, remediation tracking | ||
| Breach History | Past incidents, root causes, remediation completeness |
Compliance Gap Analysis: For each applicable regulation, document:
- Current compliance status (compliant / partial / non-compliant)
- Gap description
- Remediation effort estimate
- Timeline to compliance
- Cost estimate
6. Development Team and Process Assessment
Team Composition Analysis:
| Role | Headcount | Avg Tenure | Key Person Risk | Replacement Difficulty |
|---|---|---|---|---|
| Engineering leadership | ||||
| Backend engineers | ||||
| Frontend engineers | ||||
| DevOps/SRE | ||||
| Data engineers | ||||
| QA/Test engineers | ||||
| Security engineers |
Bus Factor Analysis:
- Identify components/systems with single-person knowledge
- Score: 1 = single person, 2 = two people, 3+ = adequate coverage
- Any component with bus factor of 1 = Significant Risk finding
DevOps Maturity Assessment (1-5 scale):
| Practice | Level 1: Ad Hoc | Level 3: Defined | Level 5: Optimizing | Current |
|---|---|---|---|---|
| Version control | Some code in VCS | All code in VCS, branching strategy | Trunk-based, feature flags | |
| CI/CD | Manual builds | Automated build and test | Full CD, canary/blue-green | |
| Testing | Manual only | Automated unit + integration | Full pyramid, chaos engineering | |
| Monitoring | Basic uptime checks | APM, log aggregation | Full observability, AIOps | |
| Incident response | Ad hoc firefighting | Runbooks, on-call rotation | Automated remediation, SLOs | |
| Infrastructure | Manual provisioning | IaC for most resources | GitOps, immutable infrastructure | |
| Security | Periodic audits | SAST/DAST in pipeline | Shift-left, continuous compliance |
7. IP and Proprietary Technology Evaluation
IP Portfolio Assessment:
| IP Asset | Type | Protection Status | Competitive Advantage | Risk |
|---|---|---|---|---|
| Patent / Trade Secret / Copyright | Filed / Granted / Pending | High / Medium / Low |
Open-Source Exposure Analysis:
- Copyleft dependencies in proprietary code (GPL, AGPL, LGPL risk)
- Contribution agreements (CLA) in place for OSS contributions
- Open-source components in core differentiating technology
- License compliance tooling in CI/CD pipeline
8. Integration Complexity Analysis
Integration Assessment with Acquirer Stack:
| Integration Domain | Target Stack | Acquirer Stack | Compatibility | Migration Effort |
|---|---|---|---|---|
| Cloud platform | ||||
| Programming languages | ||||
| Databases | ||||
| Authentication/Identity | ||||
| CI/CD tooling | ||||
| Monitoring/Observability | ||||
| Communication/Collaboration | ||||
| Data platforms |
Integration Effort Estimate:
| Phase | Duration | Team Size | Cost Range | Dependency |
|---|---|---|---|---|
| Assessment & Planning | 4-6 weeks | 3-5 | None | |
| Quick wins (identity, comms) | 6-8 weeks | 4-6 | Planning complete | |
| Core integration | 3-6 months | 8-15 | Quick wins complete | |
| Full harmonization | 6-18 months | 10-20 | Core complete |
9. Technology Investment Requirements (18-Month Post-Close)
Investment Categories:
| Category | Estimated Investment | Priority | Timeline | Rationale |
|---|---|---|---|---|
| Technical debt remediation | ||||
| Security hardening | ||||
| Infrastructure modernization | ||||
| Integration costs | ||||
| Team augmentation/retention | ||||
| Tooling and licensing | ||||
| Architecture evolution | ||||
| Total 18-Month Estimate |
10. Finding Classification and Synthesis
Classify every finding using the technology DD severity matrix:
| Severity | Definition | Examples | Valuation Impact |
|---|---|---|---|
| Deal Breaker | Fundamentally undermines the technology value proposition or creates unacceptable risk | Undisclosed data breach, no IP ownership, critical unfixable architecture flaw, key-person departure imminent | Walk away or fundamental restructure |
| Significant Risk | Material issue requiring investment or restructuring; impacts valuation | Tech debt ratio >25%, single cloud region with no DR, bus factor of 1 on core platform, compliance gaps | Price adjustment $X-Y range |
| Manageable | Known issue with clear remediation path and bounded cost | Outdated dependencies, incomplete test coverage, documentation gaps, minor compliance items | Factor into integration budget |
| Non-Issue | Observed but not material; standard for stage/industry | Normal tech debt levels, common architectural patterns, standard tooling gaps | No impact |
Output Template
# Technology Due Diligence Report: [Target Company]
**Prepared for**: [Acquirer] | **Date**: [Date] | **Confidentiality**: Strictly Confidential
## Executive Summary
**Overall Technology Risk Rating**: [Deal Breaker / Significant Risk / Manageable / Non-Issue]
**Technology Maturity Level**: [1-5] - [Ad Hoc / Managed / Defined / Quantified / Optimizing]
[3-5 sentence summary of the technology estate, key strengths, and critical concerns.]
### Finding Summary
| Severity | Count | Key Items |
|---|---|---|
| Deal Breaker | X | [Brief descriptions] |
| Significant Risk | X | [Brief descriptions] |
| Manageable | X | [Brief descriptions] |
| Non-Issue | X | -- |
### Estimated Post-Close Technology Investment: $[X]M - $[Y]M (18 months)
## 1. Infrastructure Assessment
**Maturity Level**: [1-5]
[Findings with severity classification]
## 2. Application Architecture Assessment
**Architecture Pattern**: [Monolith / Microservices / Serverless / Hybrid]
**Architecture Quality Score**: [X]/5.0
[Findings with severity classification]
## 3. Code Quality & Technical Debt
**Test Coverage**: [X]% | **Tech Debt Ratio**: [X]%
[Findings with severity classification]
## 4. Security Posture
**Compliance Status**: [Certifications held and gaps]
[Findings with severity classification]
## 5. Development Team & Processes
**Team Size**: [X] | **DevOps Maturity**: [1-5]
**Critical Bus Factor Risks**: [Components with bus factor = 1]
[Findings with severity classification]
## 6. IP & Proprietary Technology
**Patent Portfolio**: [X patents filed/granted]
**Open-Source Risk**: [Low / Medium / High]
[Findings with severity classification]
## 7. Integration Complexity
**Overall Integration Effort**: [Low / Medium / High / Very High]
**Estimated Timeline**: [X] months to full harmonization
[Integration roadmap and cost estimates]
## 8. Technology Investment Requirements (18-Month Post-Close)
| Category | Low Estimate | High Estimate | Priority |
|---|---|---|---|
| [Category] | $[X] | $[Y] | [Critical/High/Medium] |
| **Total** | **$[X]M** | **$[Y]M** | |
## Detailed Findings Register
| # | Finding | Workstream | Severity | Remediation | Est. Cost | Timeline |
|---|---|---|---|---|---|---|
| 1 | [Description] | [Area] | [Severity] | [Action] | $[X] | [Weeks] |
## Recommendations
### Proceed with Transaction (Conditions)
1. [Condition 1 with rationale]
2. [Condition 2 with rationale]
### Price Adjustment Considerations
- [Item]: $[X]-$[Y] adjustment basis
### Integration Planning Priorities (First 90 Days)
1. [Priority action]
2. [Priority action]
3. [Priority action]
Quality Checks
- All seven workstreams assessed with evidence-based findings.
- Every finding classified as Deal Breaker / Significant Risk / Manageable / Non-Issue.
- Technology maturity level (1-5) assigned with supporting evidence per workstream.
- Architecture "-ilities" scored individually with justification.
- Technical debt quantified in dollar terms (range, not point estimate).
- Security posture reviewed against applicable compliance frameworks.
- Bus factor identified for all critical components.
- Integration complexity assessed against acquirer's specific tech stack.
- 18-month investment estimate provided as a range with breakdown.
- Executive summary can stand alone for deal team decision-making.
- Scalability assessed at 2x, 5x, and 10x current load.
- Open-source license risks flagged (copyleft in commercial code).
- Cloud readiness scored if on-premises migration is anticipated.
- All cost estimates carry confidence levels (High/Medium/Low).