M&A Due Diligence: Technology Diligence (Part IV of IV)

Even if your company is not a technology company, technology-related aspects are important to investors during the process of capital raising or when getting ready to sell your business.

Why are these technology-related aspects important?

The elements of technology that support your business on a day-to-day basis can both limit and accelerate your company’s revenue and profits, which drive valuation.

When investors and our team at Colonnade Advisors come in for due diligence, we look at all of the aspects of the technology that support your business operations:

• Hardware, including networking and servers
• Software, especially understanding what is off-the-shelf vs. home-grown solutions
• Contracts and licenses
• Policies and procedures, typically captured in a systems diagram
• The team, such as the CTO, the database administrator, and all team members related to creating and maintaining your company’s technology systems.
  

What we are looking for specifically?  Security and Sustainability.

When it comes to security, you’ll want to know the details about any data breaches, loss of data, major downtime, or any other issue that could alert investors to a potential issue for your business operations. Previous technology issues are not necessarily a deal-breaker.  Investors simply want to know how well they were handled and how they will be avoided in the future. You can test the security of your systems to provide assurance to investors. Colonnade Advisors recommends vulnerability scans, security audits, risk assessments, and other steps to validate your company’s technology platforms to ensure maximum valuation in a capital raise or sales process.

When it comes to sustainability, you’ll want to know if your systems can support your business even when you get to two to twenty times your current size.  Can the technology scale with you? A key issue here can be the scalability of any home-grown systems. Generally, off-the-shelf systems are considered more scalable than systems companies have created themselves.  That is not to say that any investments you’ve made in technology platforms will not contribute to the valuation of your business. Our team will look more closely at how scalable your technology is and what costs might be involved with scaling that technology to support your growth plan for maximum valuation.

To hear Colonnade Advisors partners Gina Cocking and Jeff Guylay discuss the due diligence process as related to technology, we invite you to listen to episode 006 of our Middle Market Mergers & Acquisitions podcast.

Read the rest of blog posts in our series on due diligence:
Part I: Business due diligence
Part II: Legal due diligence
Part III: Accounting due diligence