Preparation is the key to a successful sale
Here are the key areas of Due Diligence in Tech M&A.
When it comes to acquiring a tech company, due diligence is a critical process. Buyers must dive deep into the business to uncover risks, validate assumptions, and assess opportunities.
If you’re preparing your tech business for a sale—or evaluating a potential acquisition—here are the key areas of due diligence buyers focus on:
Strategy & Markets
Does the company have a clear market position?
Are industry trends and competitive dynamics favourable?
What is the growth potential in existing or new markets?
Buyers need to understand how the company fits into their broader strategic goals.
Customers
Who are the key customers, and what is the revenue concentration?
Are contracts long-term, and are they transferable?
What is the customer churn rate and satisfaction level?
A loyal, diversified customer base with recurring revenue is highly attractive.
Financial
Are the financials accurate and up to date?
Is the revenue model sustainable and scalable?
What are the key financial metrics (e.g., EBITDA, margins, growth rates)?
Buyers scrutinize financial health to ensure the business is a sound investment.
Legal
Are there any ongoing or potential lawsuits?
Are intellectual property rights secure and enforceable?
Are there regulatory compliance risks?
Legal due diligence minimizes risks that could derail the deal or create liabilities post-acquisition.
Human Resources
Is there a strong and capable management team?
What is employee turnover like?
Are employment contracts, benefits, and compliance in order?
A skilled, stable workforce and clear HR processes are critical for continuity.
Technology
Is the tech stack modern, scalable, and secure?
Are there critical dependencies on third-party tools or platforms?
Does the company own its intellectual property (IP)?
For tech businesses, this is a make-or-break area. Robust and defensible technology drives value.
Operations
Are workflows efficient and well-documented?
What are team utilisation trends?
How resilient is the supply chain?
Are systems and processes scalable?
Operational due diligence ensures the business can handle growth and integration.
Tax
Are tax filings accurate and up to date?
Are there any risks related to tax compliance or structuring?
Are there hidden liabilities or potential audits?
Tax risks can create significant financial headaches post-acquisition if not addressed.
Corporate
What is the company’s ownership structure?
Are there shareholder agreements or other obligations?
Are all corporate filings in compliance?
Clarity in corporate governance ensures a smooth transfer of ownership.
Wrapping Up
For sellers: Understanding these key areas can help you prepare for a smoother and more successful transaction. For buyers: A thorough due diligence process is essential to making an informed investment decision.
We help tech business owners with their exit planning and acquisitions — whether you’re exploring your options, actively selling, or considering acquisitions, please get in touch to discuss how we can assist.
