"We're cloud-native" has become a meaningless phrase in M&A. We've seen companies describe single EC2 instances as "cloud architecture" and lift-and-shift migrations as "cloud transformation." Understanding the reality of a target's cloud infrastructure is essential for accurate valuation and integration planning.
The Cloud Maturity Spectrum
We categorize cloud implementations on a maturity scale:
Level 1: Hosted (Not Cloud)
VMs in a cloud provider that could just as easily be in a data center. No cloud-native benefits, often higher costs than on-premise.
Level 2: Cloud-Enabled
Using some managed services (RDS instead of self-managed databases), but architecture is still traditional. Limited scalability benefits.
Level 3: Cloud-Optimized
Leveraging auto-scaling, managed services, and cloud-native patterns. Real operational benefits, but may still have optimization opportunities.
Level 4: Cloud-Native
Designed for cloud from the ground up. Microservices, containers, serverless where appropriate. Maximum agility and efficiency.
Key Assessment Areas
1. Architecture Review
- Is the architecture truly scalable, or will it break at 2x load?
- Are there single points of failure?
- How are services deployed and orchestrated?
- What's the disaster recovery capability?
2. Cost Analysis
- What's the current monthly cloud spend?
- How has it trended over time?
- What's the cost per customer/transaction/unit of value?
- Are reserved instances or savings plans being used?
- What optimization opportunities exist?
3. Operational Maturity
- How are deployments managed?
- What monitoring and alerting exists?
- How are incidents handled?
- What's the on-call structure?
4. Security Posture
- How are cloud resources secured?
- Is IAM properly configured?
- Are resources properly isolated?
- What logging and auditing exists?
Common Cloud Cost Traps
The Scaling Cliff
Current costs look reasonable, but the architecture can't scale. At 2x volume, they'll need to re-architect—a $500K-$2M project that isn't in anyone's projections.
The Reserved Instance Gap
Paying on-demand prices for predictable workloads. We typically find 20-40% savings available through reserved capacity optimization.
The Zombie Resource Problem
Unused or underutilized resources consuming budget. Development environments running 24/7, unattached storage volumes, forgotten test instances.
The Egress Surprise
Data transfer costs that explode with growth. If the architecture wasn't designed with egress in mind, scaling can be prohibitively expensive.
The Multi-Cloud Mess
Resources scattered across providers without clear rationale. Operational complexity and cost overhead from managing multiple environments.
Integration Considerations
Cloud infrastructure significantly impacts integration planning:
- Account consolidation: Moving to buyer's cloud organization requires planning for IAM, networking, and billing integration
- Security alignment: Acquired infrastructure must meet buyer's security standards
- Operational integration: Merging monitoring, alerting, and incident response
- Cost optimization: Leveraging buyer's volume discounts and reserved capacity
Case Study: The 3x Cloud Bill
A PE portfolio company acquired a SaaS business with "cloud-native architecture" and $15K/month AWS spend. Post-acquisition:
- Month 3: $25K/month (customer growth)
- Month 6: $45K/month (scaling issues required larger instances)
- Month 12: $65K/month (database couldn't scale, moved to larger RDS)
The infrastructure wasn't cloud-native—it was a monolith running on cloud VMs. Scaling required throwing more resources at the problem rather than efficient horizontal scaling.
A proper assessment would have identified that the "cloud-native" claims were marketing, and that significant re-architecture would be needed to scale efficiently.