The Complete Technology Due Diligence Checklist for Software Acquisitions

The Black Box in Your Deal Model

You have stress-tested the revenue model. You have audited the customer concentration. You have grilled the VP of Sales on their pipeline coverage. But for the asset that actually generates the revenue—the software itself—you are flying blind.

In 2025, the standard "check-the-box" IT due diligence is negligence. A CIO interview and a self-reported questionnaire do not reveal the rotting infrastructure that will cost you $3M to replatform in Year 1. I have sat in board meetings where an Operating Partner realizes, six months post-close, that the "proprietary AI platform" they just bought is actually a tangled web of GPL-licensed open source libraries that they legally cannot monetize.

The data confirms the danger. According to Synopsys' latest Open Source Security and Risk Analysis, 74% of commercial codebases contain high-risk vulnerabilities—a massive surge from previous years. Yet, McKinsey reports that companies performing deep technical due diligence are 2.8x more likely to achieve a successful exit.

This is not about code aesthetics. This is about EBITDA preservation. Every line of bad code is a future liability on your P&L. If you don't price it in before the LOI is signed, you will pay for it out of your value creation budget later.

The 4-Pillar Diagnostic Checklist

Stop asking generic questions like "Is the code good?" and start asking specific, evidentiary questions that impact valuation. Use this checklist to uncover the truth.

1. Code Quality & Open Source Risk

This is where the biggest liabilities hide. You need to know if you actually own the IP you are buying.

• Open Source License Audit: Are there Copyleft (GPL) components mixed with proprietary code? If yes, you may be forced to open-source your entire IP.
• Component Obsolescence: 91% of codebases contain components that are 10+ versions out of date. This is security debt that requires immediate remediation.
• Hard-Coded Credentials: Scan for AWS keys and database passwords hard-coded into the repo. This is a security breach waiting to happen.

2. Architecture & Scalability

Can this platform actually handle the 3x growth your investment thesis demands?

• Monolith vs. Microservices: Is it a "Distributed Monolith"—the worst of both worlds?
• Single Points of Failure: Identify the specific databases or services that, if they go down, take the entire revenue stream with them.
• Cloud Spend Efficiency: Are they spending $50k/month on AWS for a workload that should cost $10k? This is direct EBITDA leakage. Read our guide on quantifying technical debt in M&A to price this correctly.

3. The "Human" Codebase

Software is built by people. If the people leave, does the IP leave with them?

• The "Bus Factor": If your Lead Architect gets hit by a bus (or poached by Google), does development stop?
• Hero Culture: Look for the engineer who is the only one who knows how to deploy to production. This is a critical risk.
• Ramp Time: How long does it take a new hire to ship their first line of code? If it's >4 weeks, the codebase is too complex.

Turning Findings into Deal Value

The goal of this checklist isn't just to kill deals—it's to price them accurately. When you find that the target has $2M of necessary security remediation, you don't walk away. You adjust the purchase price or structure a holdback.

We recently advised a PE firm looking at a logistics SaaS platform. Our audit revealed that 40% of their core library was deprecated and unsupported. The cost to modernize was estimated at $1.5M over 18 months. The firm didn't kill the deal. They used our report to lower the purchase price by $2M and mandated a Technical Debt Paydown Plan in the first 100 days.

The "Red Flag" Thresholds

Walk away or re-trade aggressively if you see:

• Zero Automated Testing: This means every bug fix creates two new bugs. Velocity will stall post-acquisition.
• Active GPL Violations: Legal poison pill.
• No Documentation: If the code isn't documented, you aren't buying a platform; you're leasing a team. See why skipping this step is a $2M mistake.

Your job as an Operating Partner is to de-risk the asset. Technical debt is financial debt. Treat it with the same rigor you apply to the balance sheet.