In today’s competitive M&A landscape, technology is at the core of a company’s valuation and attractiveness to potential buyers. Whether a company is preparing for an acquisition by private equity (PE) investors or a corporate buyer, technical vendor due diligence (VDD) is an essential step in the sell-side preparation process. A well-executed VDD process helps a target company articulate its technology value, address risks, and position itself for the best possible outcome in a transaction. A good and realistic story matters!
At Intium, we specialize in technical vendor due diligence, ensuring that technology is not just assessed but strategically positioned to maximize value.
Here’s what different types of buyers focus on and how companies can prepare from a tech perspective.
Private Equity Investors: What They Look For
Private equity firms are typically financial buyers who acquire companies to grow and later exit at a higher valuation. From a tech perspective, PE investors evaluate:
1. Viability of the Business Plan
PE firms need to understand how scalable and sustainable the business model is. Companies should prepare by:
Demonstrating that their technology infrastructure supports growth and efficiency
Ensuring their software architecture and development practices are adequate and scalable
Showcasing a clear roadmap for future enhancements and innovations
2. Market & Industry Dynamics
Market positioning matters, and technology plays a significant role. Companies should:
Highlight competitive differentiators in their technology stack.
Provide insights into how their tech aligns with industry trends and regulatory compliance
Ensure they have robust data analytics to support market insights and customer engagement
3. Ability to Pivot
PE firms value companies that can adapt to market changes. From a technology standpoint, this means:
Having a modular, flexible architecture that allows for quick adaptation
Ensuring agility in product development and deployment, leveraging DevOps and CI/CD practices
Demonstrating an API-first approach that allows seamless integrations and feature expansions
4. Bolt-on Integrability
Many PE firms grow their portfolio companies through acquisitions (bolt-ons). Companies preparing for a sale must:
Show that their technology can integrate easily with third-party applications and other platforms
Have well-established APIs, microservices, and standardized data models
Ensure their data governance and security frameworks are adaptable to future acquisitions
Corporate Buyers: What They Focus On
Unlike PE firms, corporate buyers are often strategic investors looking to integrate the acquired company into their existing operations. Their tech due diligence focuses on:
1. Post-Merger Integration (PMI)
Corporate buyers want to minimize friction when integrating a new company. Sellers should:
Ensure that their technology stack is compatible with industry standards
Be prepared to discuss an integration roadmap, outlining dependencies and challenges
Be prepared to align security policies, compliance measures, and IT governance frameworks
2. Integrability
Corporate buyers assess whether the acquired company’s technology will complement or clash with their existing systems. Companies should:
Evaluate technology alignment and stack consistency
Present a clear API strategy to facilitate data exchange and interoperability
Demonstrate controlled technical debt, reducing the cost of integration
3. Leadership & Team Capabilities
The acquiring company will often inherit the existing tech team. Sellers must:
Showcase strong leadership and a team capable of navigating future integrations and developments
Demonstrate an efficient and well-structured IT team with clear roles, responsibilities, and development practices
Highlight their cybersecurity and compliance expertise, ensuring that security is embedded in their culture
Best Practices for Sell-Side Technical Vendor Due Diligence
To ensure a smooth sale process, companies should adopt the following best practices:
1. Conduct a Preemptive Tech Assessment
Don’t wait for potential buyers to uncover issues. Companies should audit their technology stack, security, scalability, and architecture ahead of the sale process.
2. Prepare a Technology Narrative
Develop a clear and compelling technology story that highlights strengths and mitigates potential risks. This narrative should align with both financial and strategic value.
3. Address Risks Proactively
From security vulnerabilities to technical debt, addressing risks early prevents last-minute deal-breakers. Conduct quality reviews, security and performance assessments.
4. Ensure Compliance & Documentation
Have up-to-date documentation for software architecture, security outlines, compliance and data management frameworks (e.g., GDPR, SOC2, ISO 27001 - if applicable).
5. Align Technology Strategy with Business Goals
This one is probably the most important. A company needs to be able to demonstrate how technology supports the company’s business growth, market differentiation, and future scalability.
Final Thoughts
Sell-side technical due diligence is a critical part of the M&A process that can significantly impact deal valuation and success. Whether preparing for a PE or corporate acquisition, companies must ensure their technology is scalable, secure, and strategically positioned to attract the right buyers.
At Intium, we help companies navigate this journey, ensuring their technology is not just a support function but a value driver in the transaction. If you're preparing for an M&A process and need expert technical vendor due diligence reach out to us—we’re here to help!