A Software Bill of Materials (SBOM) is a comprehensive inventory of all components, libraries, and dependencies that make up a software product. In the context of M&A, SBOMs have become an indispensable tool for understanding the composition of a target's software assets, identifying hidden risks in open-source dependencies, and ensuring compliance with licensing obligations. Damani Data leverages SBOM analysis as a core component of our technical due diligence methodology.
Why SBOMs Matter in M&A
Modern software applications are built on a foundation of open-source and third-party components. Studies consistently show that open-source code comprises 70 to 90 percent of the average commercial software product. Without an SBOM, acquirers have no visibility into this vast dependency landscape, leaving them exposed to security vulnerabilities, licensing conflicts, and supply chain risks that could materially impact deal value.
Regulatory momentum is also driving SBOM adoption. Executive orders and industry standards increasingly mandate SBOM generation and maintenance for software sold to government agencies and critical infrastructure operators. Targets that lack SBOM capabilities may face growing compliance challenges that require post-acquisition investment to address.
From a due diligence perspective, a target's ability to produce accurate, up-to-date SBOMs is itself an indicator of software engineering maturity. Organizations with established SBOM practices typically have stronger dependency management, more disciplined build processes, and better visibility into their software supply chain.
Generating and Analyzing SBOMs During Due Diligence
When a target does not maintain SBOMs, we generate them using automated tooling applied to source code repositories, build systems, and deployed artifacts. We use industry-standard formats such as SPDX and CycloneDX to ensure compatibility with vulnerability databases and analysis tools. This process provides a comprehensive view of the target's software composition regardless of their current SBOM practices.
Our analysis examines each component for known vulnerabilities using multiple vulnerability databases, including the National Vulnerability Database (NVD), GitHub Advisory Database, and vendor-specific security advisories. We correlate findings with exploitability data to prioritize vulnerabilities that represent realistic risks rather than theoretical concerns.
Component age and maintenance status receive particular attention. Dependencies that are no longer actively maintained by their upstream projects represent a growing risk over time, as newly discovered vulnerabilities will not receive patches. We identify these abandoned dependencies and assess the effort required to migrate to actively maintained alternatives.
Licensing Risk Assessment
Open-source licensing compliance is a critical concern in M&A transactions. We analyze the licenses of every component in the SBOM to identify potential conflicts with the target's business model and distribution practices. Copyleft licenses such as GPL and AGPL can have far-reaching implications for proprietary software, potentially requiring source code disclosure or restricting commercial distribution.
License compatibility between components is another area of focus. Software products that combine components under incompatible licenses face legal risks that may require significant refactoring to resolve. We identify these conflicts and estimate the remediation effort required to achieve full licensing compliance.
We also assess whether the target has implemented license compliance processes as part of their software development lifecycle. Organizations with automated license scanning in their build pipelines are far less likely to have accumulated problematic dependencies than those without such controls.
Supply Chain Security Implications
Software supply chain attacks have emerged as a significant threat vector. Our SBOM analysis includes an assessment of supply chain security risks, including the use of components from compromised or questionable sources, dependencies with known supply chain incidents, and the target's practices for verifying the integrity of downloaded components.
We evaluate whether the target uses package lock files, checksum verification, and trusted registry configurations to protect against dependency confusion and typosquatting attacks. These technical controls are essential for maintaining the integrity of the software build process and preventing the introduction of malicious code through compromised dependencies.
By incorporating SBOM analysis into M&A due diligence, acquirers gain unprecedented visibility into the composition and risk profile of the software assets they are acquiring. This transparency enables informed decision-making, accurate risk quantification, and effective post-acquisition remediation planning.