TDD in the M&A Process
Where technical due diligence fits in the deal timeline
Technical due diligence typically occurs during the exclusive diligence period after a Letter of Intent (LOI) is signed. However, the most successful acquirers incorporate technology assessment throughout the entire M&A lifecycle—from initial target screening to post-acquisition integration.
M&A Process Timeline with Technology Touchpoints
Phase 1: Target Identification (Ongoing)
Technology Activities:
- Public technology stack analysis (using tools like BuiltWith, Wappalyzer)
- GitHub/GitLab public repository review if available
- Technology team LinkedIn analysis (size, seniority, tenure)
- Job posting analysis to identify technology gaps or initiatives
- Customer reviews mentioning technology (G2, Capterra, TrustRadius)
- Technology press coverage and conference presentations
Objective: Create technology profile for target screening and prioritization
Phase 2: Initial Assessment (1-2 weeks)
Technology Activities:
- Management presentation technology deep-dive
- High-level architecture discussion with CTO/VP Engineering
- Preliminary product demo focusing on technical capabilities
- Initial technology fit assessment against buyer criteria
- Early red flag identification
Objective: Determine if technology is compatible with investment thesis
Phase 3: LOI Negotiation (2-4 weeks)
Technology Activities:
- Define TDD scope and information requirements
- Prepare detailed data room request list
- Plan TDD team composition and schedule
- Budget for TDD engagement
- Identify subject matter experts needed
Objective: Ensure TDD can begin immediately upon exclusivity
Phase 4: Due Diligence (4-12 weeks)
Technology Activities:
- Full technical due diligence execution (see detailed breakdown below)
- Code review and static analysis
- Architecture deep-dive sessions
- Security assessment and/or penetration testing
- Infrastructure and cloud review
- Team interviews and capability assessment
- Technical debt quantification
Objective: Comprehensive technology risk and value assessment
Phase 5: Negotiation & Close (2-6 weeks)
Technology Activities:
- Present findings to deal team and investment committee
- Quantify purchase price adjustment recommendations
- Draft technology-specific representations and warranties
- Define escrow or holdback provisions for technology risks
- Finalize integration planning and Day 1 requirements
Objective: Incorporate technology findings into deal terms
Phase 6: Post-Close Integration (6-24 months)
Technology Activities:
- Execute Day 1 requirements (access, security, communication)
- Begin critical remediation projects
- Implement integration roadmap
- Track technology synergy realization
- Monitor key technology KPIs
Objective: Realize technology value identified during TDD
Detailed TDD Timeline (4-Week Standard Engagement)
| Week | Activities | Deliverables |
|---|---|---|
| Week 1 | Data room review, tool setup, initial analysis | Information gap list, initial findings |
| Week 2 | Management interviews, architecture deep-dives | Interview notes, architecture assessment |
| Week 3 | Code review, security analysis, infrastructure review | Technical analysis reports |
| Week 4 | Synthesis, quantification, report writing | Final report, executive summary, presentation |
TDD Timing: Common Mistakes
Starting Too Late
Many acquirers begin TDD too late in the process. Consequences include:
- Compressed timelines: Forced to do 4 weeks of work in 10 days
- Deal momentum pressure: "We've come this far, we can't stop now"
- Limited negotiation leverage: Findings arrive after key terms are set
- Rushed integration planning: Day 1 becomes chaotic
- Missed issues: Not enough time for thorough assessment
Starting Too Early
Beginning detailed TDD before exclusivity has its own risks:
- Wasted resources: 60-70% of deals don't close after IOI
- Limited access: Sellers restrict sensitive information before exclusivity
- Competitive disadvantage: Bidders with less diligence may offer more
- Management distraction: Targets resist extensive process before commitment
The Optimal Approach: Phased TDD
| Phase | Timing | Investment | Focus |
|---|---|---|---|
| Light Touch | Pre-LOI | $5-15K | Public info, management Q&A, red flag screening |
| Full Assessment | Post-LOI | $50-200K+ | Comprehensive TDD with data room access |
| Deep Dive | Pre-Close | $20-50K | Follow-up on critical findings, integration planning |
Coordination with Other Due Diligence Workstreams
TDD doesn't happen in isolation. Effective coordination prevents gaps and duplication:
Financial Due Diligence
- Technology costs: Validate IT/engineering spend accuracy
- CapEx requirements: Identify deferred technology investments
- Revenue at risk: Assess technology-related churn or renewal risk
- Working capital: Include technology remediation in requirements
Legal Due Diligence
- IP ownership: Confirm code was developed by employees, not contractors without assignment
- Open source: Identify copyleft license compliance issues
- Third-party software: Review license compliance and transferability
- Data privacy: Assess GDPR, CCPA compliance in systems
Commercial Due Diligence
- Product capabilities: Validate marketing claims with technical reality
- Competitive position: Assess technology differentiation sustainability
- Customer feedback: Cross-reference technology complaints
- Roadmap viability: Validate ability to deliver planned features
HR Due Diligence
- Key person risk: Identify critical technologists for retention
- Team capability: Assess skills match to technology needs
- Culture: Evaluate technology team culture fit
- Compensation: Benchmark technology salaries for retention planning
Information Flow Best Practices
Successful TDD requires clear information flow:
- Daily standups: Brief coordination among all DD workstreams
- Shared findings log: Central repository for cross-functional issues
- Escalation protocol: Clear process for deal-critical findings
- Unified timeline: Coordinate deadlines across workstreams
- Final synthesis: Joint session to ensure no gaps between workstreams
Key Takeaway: Start technology assessment early with available information, then go deep during exclusivity. A phased approach maximizes insight while managing costs. The best acquirers don't view TDD as a checkbox—they use it as a strategic advantage throughout the deal lifecycle.