The Phases of Technical Due Diligence in a Software Acquisition
When private equity firms or strategic buyers evaluate a software business, the conversation often starts with financial metrics, customer contracts, and market growth. But behind every promising SaaS or software-enabled business lies a fundamental question: can the technology actually support the growth story being sold?
Technical due diligence (TDD) answers that question. It is the structured process of evaluating a target company’s technology stack, architecture, infrastructure, processes, and people. Done well, it ensures that investors understand not only what they are buying, but also what risks and opportunities lie beneath the surface.
TDD is not a single meeting or a code review. It unfolds across distinct phases, each of which builds on the last. Below, I walk through these phases in detail, highlighting what is typically shared, what actually happens, and what is ultimately produced.
1. Preparation and Kickoff
Every diligence begins with a preparation phase. The buyer and diligence team establish context: what is the investment thesis, and what role does technology play in supporting it? A SaaS company promising international expansion will raise different technical concerns than a workflow automation platform dependent on integrations with legacy systems.
At this stage, the seller typically provides initial access to a data room containing high-level architectural diagrams, product documentation, infrastructure overviews, and engineering organization charts. This information is supplemented by responses to a standardized technical questionnaire.
A (virtual) data room is a secure, centralized repository where a seller shares critical company information with prospective buyers during an acquisition. In technical due diligence, it typically contains architecture diagrams, infrastructure documentation, product roadmaps, cloud cost reports, and security policies, providing buyers with structured, confidential access to evaluate risks and opportunities.
Some leading data room vendors include Intralinks, Datasite, Firmex, and Dealroom.
What actually happens during kickoff is alignment. The diligence team, the investment team, and sometimes the operating partners clarify where to focus. If the thesis depends on scalability, the investigation will probe cloud infrastructure and architectural design. If speed of innovation is critical, the process will examine engineering velocity, technical debt, and roadmap execution. The outcome of this phase is a customized diligence plan that sets expectations for what will be reviewed, who will be interviewed, and what deeper documentation is required.
2. Discovery and Documentation Review
The discovery phase begins when the diligence team starts working through the provided documentation in depth. Sellers are expected to share detailed system overviews, infrastructure diagrams, cloud cost reports, compliance certifications, disaster recovery policies, and a view into their product roadmap and engineering backlog.
This review is not simply about reading. The diligence team benchmarks what they see against industry best practices. For example, a disaster recovery plan is not meaningful if it has never been tested; a roadmap is not credible if there are no resources to execute it. Documentation is compared against the company’s scale, growth trajectory, and customer requirements.
The output of this stage is an initial hypothesis about where risks or opportunities may lie. A platform built on a monolithic architecture may raise questions about scalability. Heavy reliance on manual deployments may indicate DevOps immaturity. On the positive side, a well-structured cloud cost report may suggest opportunities for margin expansion through optimization. This stage often produces a “risk heatmap” that highlights areas to probe in interviews and working sessions.
3. Deep-Dive Interviews and Working Sessions
Documentation can only tell part of the story. To validate assumptions and uncover realities, the diligence team engages directly with the target company’s technology leadership and engineering team.
These sessions usually include architecture walkthroughs, whiteboarding exercises, and discussions about day-to-day development practices. The diligence team probes into how work is prioritized, how incidents are handled, how releases are deployed, and how the team is structured. This phase is as much about organizational health as it is about technology. Are engineers constantly firefighting, or is the team strategically aligned and executing predictably? Are there critical dependencies on a single individual, or is knowledge distributed across the team?
The result of these conversations is a deeper, more nuanced view of the technology and the culture behind it. Interview notes and validated process maps help clarify whether the technology organization is resilient enough to support the growth story promised to investors.
4. Codebase and Infrastructure Analysis
Once interviews and documentation reviews are complete, diligence often turns to the core assets: the codebase and infrastructure. Sellers may grant read-only access to source code repositories, infrastructure-as-code files, CI/CD pipelines, and monitoring dashboards.
Here, the diligence team assesses code quality, maintainability, and test coverage. They look for warning signs such as tightly coupled modules, lack of unit testing, or outdated dependencies. Infrastructure is evaluated for scalability, resilience, and cost efficiency. For cloud-based businesses, cloud bills are analyzed to understand whether spend scales linearly with revenue or if there are efficiency levers available.
The deliverables from this phase often include a structured code quality assessment and an infrastructure maturity score. Importantly, the findings distinguish between issues that are “fix-now” risks (e.g., security vulnerabilities or brittle deployment processes) versus long-term modernization opportunities (e.g., moving from a monolith to microservices).
5. Risk Assessment and Value Creation Opportunities
At this stage, the diligence team synthesizes findings into a structured view of risk and opportunity. Clarifications are often sought through follow-up questions or additional documentation requests. The team also compares the company’s product roadmap with the realities of its current technology. If leadership claims they can add AI-powered features in six months but the codebase is brittle and untested, that discrepancy is flagged.
The key here is quantification. Risks are not just listed, they are tied to cost, timeline, and potential impact on the investment thesis. For example: “Current architecture will not scale past 2x current load without major refactoring, which will require 12 months and $5M of investment.” Similarly, opportunities are framed in business terms: “Cloud cost optimization could improve EBITDA margins by 300 basis points within the first year.”
The output is a draft findings report that balances risks with opportunities, ensuring investors have a clear, quantified understanding of where technology could accelerate or hinder value creation.
6. Final Reporting and Executive Readout
The diligence concludes with a final synthesis of all findings. A near-final report is typically shared with management for validation of factual accuracy, though the substance of the findings is not softened.
In the executive readout, the diligence team translates technical assessments into business language. Instead of talking about “test coverage percentages,” they explain whether the company can release new features quickly and safely. Instead of debating “infrastructure provisioning,” they discuss whether the platform can scale internationally without disrupting customer experience.
An executive readout is the final presentation of due diligence findings, where technical assessments are translated into clear business terms for investors and decision-makers. It highlights key risks, required investments, and value creation opportunities, linking technology insights directly to the deal thesis and post-close strategy.
The final report typically includes:
A risk register with severity ratings.
A prioritized set of integration and remediation recommendations.
An explicit connection between technology strengths/weaknesses and the investment thesis.
This report does not just close out the diligence process. It sets the foundation for the post-close value creation plan.
Executive Takeaway
Technical due diligence is not about finding every flaw in the codebase. It is about understanding whether the technology can deliver on the promises made in the investment thesis, and what it will take to unlock future value. By moving systematically through preparation, discovery, interviews, analysis, risk assessment, and final reporting, investors gain confidence not only in what they are buying but in how they can grow it.
The strongest outcomes come when diligence is forward-looking. Instead of just flagging risks, the process identifies concrete opportunities for modernization, efficiency, and innovation. In that sense, technical due diligence is not simply a safeguard against bad investments. It is a roadmap for creating great ones.