In the current 2026 exit environment, buyers have stopped paying for potential and started paying for predictability. The era of the "growth at all costs" premium is dead. Today, Private Equity sponsors are holding assets longer—averaging nearly 6 years according to recent market data—and facing significantly higher scrutiny on Quality of Earnings (QoE).
For Operating Partners, the most dangerous line item on the P&L isn't the one you can see; it's the one buried inside your R&D and IT spend. It is Technical Debt. It is not an abstract engineering complaint; it is a direct tax on EBITDA. When your portfolio company's CTO asks for more headcount but feature velocity slows down, that is not a staffing problem. It is a debt service problem.
Recent 2025 data from McKinsey reveals a staggering benchmark: technical debt now consumes 40% of the average IT budget. That means for every $1 you deploy into technology to drive growth, 40 cents is immediately incinerated just to keep the lights on. In a $50M revenue company with a 10% IT spend ($5M), that is $2M of annual value destruction. At a 12x multiple, you are leaving $24M of Enterprise Value on the table because your engineering team is servicing interest on bad code rather than building revenue-generating assets.
Buyers know this. Sophisticated strategic acquirers and Tier-1 PE firms are no longer satisfied with a shallow code audit. They are running "Developer Velocity" assessments. If they see your team spends 33% of their week refactoring legacy spaghetti code, they price in a "Rewrite Risk" discount. They assume they will have to burn cash for 18 months to fix what you ignored. To maximize exit value, you must reposition IT from a maintenance-heavy cost center to a lean, efficient value driver.
To fix the problem, you must first quantify it in language the Board understands. You need to move the conversation from "code quality" to "capital efficiency." We use three primary metrics to diagnose the severity of the Tech Debt Tax in portfolio companies.
Healthy software companies should spend roughly 70% of engineering cycles on new features (Innovation) and 30% on maintenance. In distressed assets, we often see this inverted: 70% maintenance, 30% innovation. This inversion creates a death spiral: because you can't ship features fast enough to close deals, you hire more developers. But adding developers to a debt-ridden codebase actually decreases velocity initially (Brooks' Law), driving EBITDA margins down further. Benchmarking your IT spend against this 70/30 split is the first step in stopping the bleeding.
Research from the Software Improvement Group (SIG) indicates that M&A targets often carry a "quality surcharge." In high-debt environments, every new feature costs 10-20% more to build than it should because developers must navigate brittle dependencies. This is essentially an inefficiency tax on your R&D payroll. If your $10M engineering payroll is operating at a 20% inefficiency due to debt, you are paying $2M/year for zero output.
When we perform Technical Debt Assessments for PE firms, we often find that the "Rewrite Risk" is the single largest lever for price reduction. If a buyer believes the platform cannot scale to $100M ARR without a total re-architecture, they will deduct the estimated cost of that rewrite (plus a risk premium) from the purchase price. We have seen $2M in technical debt translate to a $15M reduction in final deal value.
You cannot rewrite the entire platform before a sale. That is a trap that leads to missed exit windows. Instead, you must execute Strategic Refactoring—fixing only the debt that directly impacts revenue velocity or buyer perception. Here is the operator's approach to cleaning up the balance sheet.
When you position IT for exit, you are selling the future efficiency of the asset. A buyer pays a premium for a machine that prints cash with low friction. By quantifying your technical debt, improving your Maintenance-to-Innovation ratio, and demonstrating a disciplined remediation process, you transform IT from a black-box cost center into a transparent, scalable engine. You turn a "fixer-upper" discount into a "platform-ready" premium.
