Most PE (Private Equity) and VC (Venture Capital) firms have bold ambitions to acquire and grow companies. Success depends on their industry foresight, technology understanding, and the ability to accelerate from an idea to execution to create sustained value.
In the post-pandemic environment, buyers must act fast. They need to identify paths to create value and mitigate risks. The new reality requires sellers to stay ahead by preparing an “operationally optimized” business that can quickly be “transaction ready.”
In today’s market, the competition is stiff and is driving valuations—today’s deals are more complicated due to operationally complex assets and integrated technologies, which present risks and challenges that require new skills, tools, and insights. Having a technology partner that understands technology and can give an accurate picture is one of the critical factors in the success of the deal that has a higher probability of achieving its goals.
According to Gartner, “Information & Technology should be addressed during the due diligence as a starting point to gather information and better support the organization’s M&A. This will enable identification of potential issues, key risks, and challenges in planning the integration.”
Key focus points on technology due diligence to reduce risks includes assessing technology and related aspects of a company. This comprises products, software, roadmap, product differentiators, systems, and practices. Beneficial when acquiring companies, M&A, and initial public offerings, a lack of technology due diligence can lead to drastic risks.
Briefly, the risks associated with a lack of technology due diligence include
- Market Forces
- Intellectual Property
- Third-Party Software Usage
- Reputation and Prior Experience
- The Size of Transactions
- Availability of Resources
- General Risks Associated with the Platform, Products, Goods, or Services
The following are the key focus points for reducing risks
- Be clear on your acquisition strategy: hold, transform, grow, integrate, or remediate
- Check if the delivery schedule of the product road map is reliable
- Analyze whether technology can handle user growth over the years
- Evaluate if the technology team has the plan to maintain its velocity while scaling
- Assess if the vital technology best practices and processes are in place
- Review the audit reports of vital technology compliance
- Decide if a new CTO needs to be hired
Once all these key elements are assessed and sorted out, there is no reason that smart investments or M&A decisions will not take place. Moreover, every time you put your team through a technology due diligence process, ask yourselves the following questions:
- Do you have a detailed understanding of the critical exposures the company may have to cybersecurity threats?
- Does the company have a strategy to protect critical processes and intellectual property?
The above-mentioned key elements are meant as information and require a more profound understanding of the company and the industry. However, if you would like a more detailed overview, do not hesitate to reach out to me at rizwan.khan@fuzzitech.com.
I have years of experience building Technology and providing Technology Due Diligence as a CTO, and I am available for fruitful discussions.
Fuzzitech expertise and experience in Technology Advisory and Due Diligence can help you successfully discover the truth from the perceived value of technology as a vital part of the transaction. Hence, you have the clarity to know how and where to move forward quickly.
