The financial due diligence is complete. The EBITDA looks healthy. The customer retention rates are solid. The deal team is ready to sign.
But lurking beneath the surface of that profitable P&L is a silent valuation killer: Technical Debt.
In today’s M&A landscape, technology isn’t just a supporting function; it’s the product, the distribution channel, and the operational backbone. Yet, many acquirers treat IT Due Diligence as a “check-the-box” exercise, focusing only on infrastructure costs and basic security.
This is a mistake.
Hidden technical debt and cybersecurity risks are not just operational headaches—they are financial liabilities that can erode your investment thesis, delay integration, and destroy millions in value post-close.
Here is how these “deal killers” hide in plain sight, and how forensic technology due diligence can protect your valuation.
What is Technical Debt in an M&A Context?
In software engineering, “technical debt” refers to the implied cost of additional rework caused by choosing an easy (limited) solution now instead of using a better approach that would take longer.
In M&A, we define it more broadly: Tech debt is the cost of fixing everything the seller ignored to boost short-term profitability.
It includes:
- End-of-Life (EOL) Systems: Core ERP or CRM platforms that are no longer supported and must be replaced immediately.
- Spaghetti Code: Custom software that is undocumented, unstable, and built by a single developer who is about to leave.
- Manual Processes disguised as “Automation”: A “tech-enabled” service that is actually 50 people using Excel spreadsheets.
The Valuation Impact
If you buy a company for $50M based on a $5M EBITDA, but discover post-close that you need to spend $2M immediately to replace a failing ERP system, you have effectively overpaid. Your true purchase price was $52M, and your first-year EBITDA just took a massive hit.
The 3 Most Common “Hidden” Deal Killers
1. The “Black Box” Custom Application
The Scenario: The target company claims to have a proprietary, competitive advantage in their custom software platform.
The Reality: The code was written 10 years ago by a founder who is leaving. It has no documentation, no automated testing, and cannot scale.
The Risk: You aren’t buying an asset; you’re buying a liability. You will likely have to rewrite the entire platform from scratch, delaying your growth thesis by 12-18 months.
2. The Cyber Time Bomb
The Scenario: The target has never had a breach and claims to be secure.
The Reality: They have never had a penetration test. They are running unpatched servers. They have open RDP ports exposed to the internet.
The Risk: You acquire the company, and 30 days later, ransomware hits. Not only do you face the cost of the breach, but if they were non-compliant (HIPAA, PCI), you inherit the regulatory fines and reputational damage.
3. The “Key Person” Dependency
The Scenario: The IT operations run smoothly and costs are low.
The Reality: The entire infrastructure is held together by “Dave,” the IT Director who has all the passwords and process knowledge in his head.
The Risk: If Dave leaves post-close (which happens often), the entire system grinds to a halt. You have zero documentation and no way to manage the environment.
How Forensic IT Due Diligence Protects You
Standard IT diligence asks, “What do you have?” Forensic diligence asks, “How well does it work, and what will it cost to fix?”
As your M&A Technology Due Diligence partner, Authentic Bridge goes beyond the checklist.
We Quantify the Remediation Cost
We don’t just flag risks; we put a price tag on them.
- “The ERP is outdated” becomes -> “You will need to invest $500k in Year 1 to migrate this system.”
- “The code is messy” becomes -> “You need to hire 2 senior engineers ($300k/yr) to stabilize this platform before you can add new features.”
We Adjust the Purchase Price
Armed with our findings, you can go back to the negotiating table. You can use quantified tech debt to:
- Lower the Purchase Price: “We found $1M in necessary IT upgrades; we are adjusting our offer.”
- Increase Escrow: Hold back funds to cover potential cyber liabilities.
- Demand Pre-Close Remediation: Require the seller to fix specific security gaps before you sign.
We Plan the Integration
Real diligence is the foundation of the Post-Merger Integration (PMI). By knowing the skeletons in the closet before you buy, we can build a realistic 100-Day Plan that prioritizes stability and risk reduction.
Don’t Buy a Lemon
In M&A, what you don’t know will hurt you.
Tech debt and cyber risk are manageable—if you know about them. But if they surprise you post-close, they are valuation destroyers.
Don’t rely on financial diligence alone. Get a forensic view of the technology that powers the business.
Protect your investment. Contact Authentic Bridge to discuss our M&A Technology Due Diligence services for your next deal.