Unlock Hidden Value with Vendor Technology Due Diligence
When private equity firms reach the end of a holding period and are looking to exit a technology investment, it has become common to undertake a thorough sell-side due diligence process to ensure that their asset is adequately and strategically positioned. Here are some of the more crucial aspects of this process and how it helps to best expose the target, thus maximizing its value.
Vendor Tech DD and Risk (Uncertainty)
A bit of a disclaimer is in order here - no company is perfect, and, per our experience, all enterprises have issues. The vendor technology due diligence is not there to embellish any caveats and shortcomings of the target, but rather help anchor those constructively and concisely helping the asset address low-hanging fruits early on.
Also, no investor/buyer is alike. All have different ideas and investment theses that need to be validated and assessed methodically (e.g., think strategic vs. institutional investors). Hence, some strengths or weaknesses may not even come up on the radar during a buy-side due diligence.
That said, all of the investors have an allergic reaction to uncertainty which equals risk. The sell-side diligence is there to minimize uncertainty and provide adequate detail for a buyer to decide, covering all facets of the business. A clear representation yields clean SPAs and earn-out plans and smoothens underwriting and leveraging discussions.
Vendor, Sell-Side, or Exit Technology Due Diligence?
Sell-side due diligence is often referred to as ‘vendor due diligence’ or ‘sell-side due diligence’ or even ’exit due diligence’ / ’exit dd’. All of these mean the same thing.
An exit technology due diligence is the process of analyzing the target’s technology portfolio from the seller’s perspective. It is designed to help private equity firms identify the target’s strengths and weaknesses, as well as any potential risks, before beginning the exit process. A good practice is to begin 6-12 months before to allow for assimilation of the exit dd findings and close gaps.
The process is typically data-driven, meaning it involves benchmarking the target against the market, and mapping against the potential nature of the buyer (e.g., institutional/strategic) and interests. At its core, it involves a comprehensive review of the target’s technology stack including evaluating the target’s IT infrastructure, software applications, and architecture, enterprise systems, data, and networks. As part of the core assessment, it also must include an evaluation of development processes (e.g., quality assurance, work-item management efficiency, automation, deployment, etc.) as well as a review of the organization including leadership and key people. Depending on the business the scope may be expanded (e.g., if a critical professional services component is present).
The review is conducted to ensure the target is compliant with the applicable laws, regulations, and industry standards. It also helps to identify any potential vulnerabilities, inefficiencies, and areas for improvement.
As a result, the sell-side due diligence process helps the investor and the target team to prepare for an effective transaction. It allows to close any potential gaps before they become a problem and minimizes any uncomfortable surprises that may arise during a buy-side due diligence.
Good Data Room Matters
One of the main benefits of sell-side due diligence is that it helps to compile a comprehensive data room. This ensures that the buyer receives all the information they need to make an informed decision. It can also help to reduce the amount of time spent on the actual diligence, explaining inconsistencies or even fixing problems that could have been avoided. All of this leaves more time for the team to continue running the business unhindered in parallel.
Vendor Tech DD Report - a Powerful Communication Medium
Another advantage is that the process helps to emphasize the target’s strategic strengths. This allows the private equity firm to understand the target’s value and informs the exit strategy. A key element in this is the vendor technology due diligence report. If well constructed and consistent, this report can then be used to negotiate a favorable deal and position the target strategically for maximum value.
Practiced IT Exit Diligence Vendor Is an Ally Like No Other
Finally, we cannot forget the need for an experienced technology due diligence vendor. A partner having numerous diligences under their belt can provide valuable insights for the owner. Moreover, they can adjust target positioning in a professional and consistent format that instills trust via a realistic and balanced sell-side technology due diligence report. This allows the buying private equity firm or a strategic investor to make an informed decision about the target’s worth while preserving the targeted return on investment for the owner.
A Sound Exit With Intium
Overall, sell-side due diligence is an essential component of any investment process. It helps identify the target’s strengths and weaknesses and any potential risks before the next acquisition round. It also helps to compile a comprehensive data room and position the target strategically, thus maximizing its value. With the right team in place, private equity firms can be sure that they will make a sound exit.
At Intium, we understand the importance of sell-side (vendor) technology due diligence aka exit dd as an essential step in the private equity investment process. We aim to allow investors to identify and understand the target’s technology strategic value, to maximize the value of the deal.
Our data-driven approach to the exit dd helps to emphasize the target’s strategic strengths and competitive advantages. By utilizing our extensive experience in the field of technology due diligence, we can help the team prepare for an effective transaction and identify and close any gaps early.
Our vendor tech dd process helps the team to spend considerably less time during the actual technology diligence, as we have the expertise to compile a comprehensive data room, and our team of seasoned professionals can help you prepare your target’s technology from all angles. With our sell-side IT technology due diligence process, you can rest assured that your asset is represented with maximum potential.