Technical Due Diligence Playbook
This document provides a comprehensive guide for conducting technical due diligence (Tech DD) engagements for M&A transactions, technology investments, or platform integrations.
What is Technical Due Diligence?
Technical Due Diligence is a systematic review of a target company’s technology assets, typically conducted as part of an acquisition, merger, or investment process. The goal is to understand:
- What the technology does and how it works
- The quality and maintainability of the codebase
- Technical risks that could affect valuation or integration
- The effort required to maintain, scale, or integrate the technology
When to Use This Playbook
- M&A Due Diligence: Client is acquiring a company with internal technology
- Investment Evaluation: Client is investing in a tech-enabled company
- Partnership Assessment: Client is considering deep technology integration with a partner
- Platform Integration: Client needs to understand a system before integrating it
Standard Review Areas
1. Architecture Review
What to examine:
- Overall system design and architectural patterns
- Service boundaries and component responsibilities
- Data flow between systems
- API design and contracts
- Third-party dependencies and integrations
Key questions:
- Is the architecture appropriate for the current scale?
- Can it scale to 10x the current load?
- Are there single points of failure?
- How tightly coupled are the components?
Red flags:
- Monolithic architecture with no separation of concerns
- Circular dependencies between services
- No clear API contracts
- Hardcoded configuration throughout codebase
2. Code Quality
What to examine:
- Code organization and file structure
- Naming conventions and readability
- Comments and inline documentation
- Consistency across the codebase
- Error handling and edge cases
Key questions:
- Could a new developer onboard quickly?
- Is the code self-documenting?
- Are there obvious copy-paste patterns?
- Is error handling consistent?
Red flags:
- Inconsistent coding styles
- Commented-out code blocks
- God classes or functions (>500 lines)
- No separation between business logic and infrastructure
3. Documentation
What to examine:
- README files and setup instructions
- API documentation (OpenAPI, Postman, etc.)
- Architecture diagrams
- Runbooks and operational docs
- Inline code comments
Key questions:
- Can you run the application from the README?
- Is the API documented for external consumers?
- Are there diagrams showing system architecture?
- Is there documentation for common operations?
Red flags:
- No README or outdated README
- No API documentation
- Missing setup instructions
- Documentation contradicts actual code
4. Testing
What to examine:
- Test coverage percentage
- Types of tests (unit, integration, e2e)
- Test quality and maintainability
- CI/CD pipeline test stages
- Test data management
Key questions:
- What is the overall test coverage?
- Are critical paths well-tested?
- Do tests run in CI/CD?
- How long do tests take to run?
Red flags:
- No tests or <20% coverage
- Tests that are always skipped
- Flaky tests that fail randomly
- No integration or e2e tests
- Tests that test implementation, not behavior
5. Dependencies
What to examine:
- Package manager and lock files
- Dependency versions and update status
- Known vulnerabilities (npm audit, Snyk, etc.)
- License compliance
- Custom forks or patches
Key questions:
- When were dependencies last updated?
- Are there known security vulnerabilities?
- Are any critical dependencies unmaintained?
- Are licenses compatible with business use?
Red flags:
- Dependencies 2+ major versions behind
- Known critical vulnerabilities
- Unmaintained packages with no alternatives
- GPL-licensed code in proprietary product
6. Security
What to examine:
- Authentication implementation
- Authorization and access control
- Input validation and sanitization
- Secrets management
- Data encryption (at rest and in transit)
- Logging and audit trails
Key questions:
- How are users authenticated?
- Are API endpoints properly authorized?
- Where are secrets stored?
- Is sensitive data encrypted?
- Are there audit logs for sensitive operations?
Red flags:
- Hardcoded secrets in code
- No input validation
- SQL injection or XSS vulnerabilities
- Passwords stored in plaintext
- No HTTPS enforcement
- Over-permissive access controls
7. Infrastructure
What to examine:
- Hosting environment (cloud provider, services used)
- Database configuration and backups
- CI/CD pipeline and deployment process
- Monitoring and alerting
- Disaster recovery plan
- Cost structure
Key questions:
- What is the monthly infrastructure cost?
- How are deployments performed?
- Is there monitoring and alerting?
- What is the backup strategy?
- Is there a disaster recovery plan?
Red flags:
- No automated deployments
- No monitoring or alerting
- No backup strategy
- Single-region deployment with no failover
- Unexplained high infrastructure costs
8. Team and Process
What to examine:
- Team size and composition
- Development workflow (Agile, etc.)
- Code review practices
- Knowledge distribution
- Key person dependencies
Key questions:
- How many engineers work on this?
- What is the development workflow?
- Are there code reviews?
- Is knowledge siloed in specific people?
Red flags:
- Single developer with all knowledge
- No code review process
- No documentation of processes
- High turnover in engineering team
Access Request Template
When starting a Tech DD engagement, request the following from the target company:
Essential Access
| Item | Description |
|---|---|
| Code Repository | Read-only access to all relevant repos (GitHub/GitLab/Bitbucket) |
| Architecture Docs | Any existing technical documentation or diagrams |
| Database Schema | Schema documentation or read-only database access |
| API Documentation | Postman collections, OpenAPI specs, or endpoint docs |
Infrastructure Access
| Item | Description |
|---|---|
| Hosting Overview | Description of cloud services, regions, and configuration |
| Cost Breakdown | Monthly infrastructure costs by service |
| CI/CD Access | Read-only access to deployment pipelines |
| Monitoring Access | Read-only access to observability tools |
Communication
| Item | Description |
|---|---|
| Tech Walkthrough | 1-hour call with technical lead |
| Async Channel | Slack or email for follow-up questions |
| Setup Instructions | README or guide to run locally |
Common Red Flags Summary
Critical (Deal Breakers)
- Hardcoded secrets in version control
- Known unpatched security vulnerabilities
- No tests and undocumented code
- Single developer with all knowledge who is leaving
- GPL code in proprietary product without compliance
Major (Significant Investment Needed)
- Large tech debt requiring months of work
- Outdated framework versions (2+ major versions behind)
- No CI/CD or automated deployments
- Poor or no documentation
- Monolithic architecture blocking scalability
Minor (Normal Technical Debt)
- Inconsistent code style
- Some outdated dependencies
- Incomplete test coverage
- Missing some documentation
- Minor security improvements needed
Findings Report Structure
Executive Summary (1 page)
- Overall assessment (green/yellow/red)
- Top 3-5 findings
- Integration recommendation
- Estimated post-acquisition investment
Detailed Findings (5-15 pages)
For each review area:
- Summary assessment (1-5 rating)
- Key findings (bulleted list)
- Evidence (code snippets, screenshots)
- Recommendations
- Effort estimate (if applicable)
Risk Matrix
| Risk | Severity | Likelihood | Mitigation |
|---|---|---|---|
| [Finding] | High/Med/Low | High/Med/Low | [Action] |
Recommendations
Prioritized list of actions:
- Pre-Close - Must fix before acquisition closes
- 0-30 Days - Fix immediately after close
- 30-90 Days - Address in first quarter
- Backlog - Track but not urgent
Integration Assessment Framework
When evaluating how a target system integrates with an existing platform:
Compatibility Dimensions
| Dimension | Questions to Answer |
|---|---|
| Data Model | Do schemas align? What migration is needed? |
| Authentication | Can auth systems merge? SSO implications? |
| API Contracts | Can existing APIs be preserved or must clients migrate? |
| Frontend | Can UI components be reused? Same framework? |
| Infrastructure | Same cloud provider? Compatible services? |
Integration Strategies
-
Standalone - Keep systems separate, minimal integration
- Lowest effort, maintains independence
- Higher ongoing maintenance cost
-
API Integration - Connect via APIs, no code merge
- Moderate effort, preserves both codebases
- Good for loosely coupled features
-
Gradual Migration - Move features incrementally
- Higher effort, but manageable risk
- Best for complex systems
-
Full Merge - Combine codebases completely
- Highest effort, highest risk
- Eliminates redundancy long-term
Pricing Guidance
Typical Engagement Sizes
| Codebase Size | Duration | Hours | Cost Range |
|---|---|---|---|
| Small (1 app, <50k LOC) | 1 week | 30-40 hrs | 8,000 |
| Medium (2-3 apps, 50-200k LOC) | 1-2 weeks | 40-60 hrs | 12,000 |
| Large (multiple apps, >200k LOC) | 2-3 weeks | 60-100 hrs | 20,000 |
| Enterprise (platform ecosystem) | 3-4 weeks | 100-150 hrs | 35,000 |
Factors That Increase Effort
- Poor documentation
- Multiple programming languages
- Complex third-party integrations
- Security-sensitive industry (healthcare, finance)
- Integration analysis required
- Multiple teams to interview
Deliverable Templates
Code Quality Scorecard
| Dimension | Score (1-5) | Notes |
|---|---|---|
| Architecture | ||
| Code Organization | ||
| Documentation | ||
| Test Coverage | ||
| Security | ||
| Dependencies | ||
| Infrastructure | ||
| Overall |
Scoring Guide:
- 5: Excellent - Best practices, minimal issues
- 4: Good - Minor issues, production-ready
- 3: Adequate - Some issues, manageable debt
- 2: Below Average - Significant issues, investment needed
- 1: Poor - Critical issues, major remediation required
Post-DD Follow-Up
After delivering findings:
- Findings Review Call - Walk through report with stakeholders
- Q&A Period - 48-hour window for follow-up questions
- Deal Support - Available to clarify findings for deal negotiations
- Remediation Scoping - Can scope follow-on work to address findings