When it comes to mergers and acquisitions, investors don’t need any nasty surprises. In today’s world, corporate software systems are an intrinsic part of a company’s value. So if there are risks and issues in a target company’s custom software, it’s important to know them up front.
In the past, due diligence focused on financial and legal details. With custom technology driving and differentiating almost every competitive organization today, technical due diligence has rapidly risen to the fore. However, it’s no longer enough to bring in a single expert to evaluate a system. You need hard facts. Here’s why.
Which risks can technical due diligence detect?
There are three key areas of risk covered by technical due diligence: operational risk, technical risk, and financial risk. These risks occur when software quality is less than optimal. When software systems are complicated to maintain, they drain resources, hindering both innovation and scalability. We’ll be diving into each of these risks and how they’re related in an upcoming blog series.
A poorly maintained system with high technical debt impacts business agility. It also impacts your ability to integrate systems as part of a merger or acquisition. Deploying an assessment tool to perform static source code analysis can reveal whether integration with your existing systems is unfeasible or even impossible.
In mergers and acquisitions, target companies are typically small. Issues around IP can often go undetected, until they’re acquired by a larger firm and their public profile is raised. Being unaware of infringements can lead to costly lawsuits and interruptions to business continuity.
Technical due diligence can also expose any vendor lock-in before your deal is closed. Smaller companies tend to rely on third-party components – whether closed source, open source, or from development partners. Performing technical due diligence in the form of static source code analysis helps you fully understand what’s inside your codebase so you can mitigate all the risks. An example of this is when the system is too reliant on one third-party component. Would the system fall down without it?
It can also expose the risk of dependence on an existing software developer or team. Often it’s the case that a limited number of people know everything about the system. What happens if those people leave the organization?
Why one expert opinion isn’t enough
As a buyer, technical due diligence helps you establish whether a company is fit to invest in or not. In the past, technical due diligence used to be done in the form of interviews, questionnaires, or software demos – often based on one person’s technical expertise.
Due diligence on aspects of IT such as hardware and off-the-shelf software is one thing.
But now custom software has become so strategically important and relevant – in many cases it’s the main business asset – you need more than someone’s opinion to mitigate potential risks. Gaining fact-based insights into custom code-based has become essential for risk mitigation in mergers and acquisitions.
Source code analysis for technical due diligence
Performing due diligence on custom coded systems has become too important to ignore in scenarios where software is the main carrier of a company, or custom software is managed by a larger, and more expensive team.
Static source code analysis is a powerful tool for surfacing the hidden risks inside custom-coded software. Most importantly, when the acquirer and target company can agree on the current status of a software system, it gives them a strong platform for post-acquisition integration.
You can learn more about the operational, technical, and financial risks of custom-coded systems – and how to mitigate them – in our upcoming blog series. For the latest announcements, follow us on LinkedIn.
