Most acquisition due diligence programmes cover financial performance, legal liabilities, customer concentration and key person risk in considerable depth. Technology due diligence, if it appears at all, is often a lighter-touch exercise that focuses on whether the target business has obvious cybersecurity vulnerabilities or whether its software licences are in order.
For SME acquisitions, this approach underestimates the commercial significance of technology risk. The cost and complexity of integrating or replacing the acquired business's technology estate is a real financial variable in the deal. Legacy systems that appear adequate during the due diligence process may reveal significant limitations once they need to function as part of a larger combined business. And technology dependencies that are not identified before the deal closes become integration problems that need to be managed under the pressure of the post-deal period.
This article covers the technology due diligence questions that matter most for SME acquisitions and how the findings should inform both the deal and the integration plan.
The Commercial Case for Technology Due Diligence
Technology due diligence serves two distinct commercial purposes. First, it identifies risks that might affect the deal price or structure: systems that require immediate replacement, data protection obligations that create liability exposure, or IT infrastructure that requires capital investment to bring up to acceptable standards.
Second, and often more valuable for SME acquisitions, it informs the integration plan and cost estimate. Understanding the complexity of the acquired business's systems before the deal closes means the integration budget and timeline can be set realistically rather than being revised upward once the full extent of the work becomes apparent. Acquisitions that go into the deal with a clear technology integration plan are significantly better placed to realise their synergies on schedule than those that start planning the integration after completion.
Key Technology Due Diligence Questions
What systems are in use and what do they do?
The starting point is a complete inventory of every system the target business relies on: ERP and accounting systems, CRM and sales tools, operational management systems, IT infrastructure and any bespoke or in-house-built applications. For each system, the key questions are what operational processes depend on it, how many users rely on it, what data it holds and whether it is cloud-based or on-premise.
What is the quality of the core data assets?
The financial data, customer records and operational data held in the target's systems represent a significant part of the commercial value being acquired. Data quality assessment looks at completeness, accuracy, consistency and structure. Poor data quality in the CRM does not necessarily affect the value of the underlying customer relationships, but it substantially affects the cost and complexity of migrating that data into the acquiring business's systems.
What are the integration dependencies?
Understanding how the target's systems connect to each other and to external systems, whether NHS or local authority systems in a care context, supplier platforms in a distribution business, or banking and payment systems in a financial services context, is essential for integration planning. Connections that are not identified during due diligence become surprises during implementation.
What are the data protection and security obligations?
The data protection posture of the acquired business is a material legal and reputational consideration. Understanding what personal data the business holds, whether it is processed in compliance with UK GDPR, whether there are any outstanding data protection obligations or regulatory notifications, and what cybersecurity controls are in place protects the acquiring business from inheriting liabilities that were not priced into the deal.
What contracts exist for software and IT services?
Software licence agreements, IT support contracts and cloud service subscriptions may contain terms that affect the integration plan. Change of control provisions in some contracts require notification or consent on acquisition. Minimum term commitments in others may mean that systems cannot be retired as quickly as the integration plan assumes. Identifying these constraints before the deal closes allows them to be factored into the integration timeline.
Using Due Diligence Findings in the Integration Plan
The output of technology due diligence should feed directly into the EdgeFusion implementation scoping. Systems that need immediate replacement are prioritised in the early phases of the integration. Systems that can be retained in the medium term while the business adjusts to the acquisition are scheduled for later phases. The data migration scope is defined based on what has been found in the due diligence assessment rather than what is assumed.
Advantage works with businesses approaching an acquisition to conduct or review technology due diligence findings and translate them into a realistic integration plan. The combination of Microsoft implementation expertise and familiarity with the common SME technology landscape means the translation from due diligence findings to integration planning is direct and grounded.
Contact Advantage on 020 3004 4600 or visit our contact page to discuss technology due diligence and integration planning for your acquisition.
Related Resources
EdgeFusion - The AI Accelerator for Mergers and Acquisitions
Solution Design and Architecture
Data Migration and Legacy Modernisation
Stay Secure, Stay Resilient
Advantage Secure365
