Why Financial Due Diligence Isn’t Enough: The Case for Tech Diligence

In Mergers and Acquisitions (M&A), the “Quality of Earnings” (QofE) report is the bible. Deal teams scrutinize every revenue line, expense category, and EBITDA adjustment to validate the purchase price. But in the modern economy, looking at financial statements is like driving a car by only looking in the rearview mirror. Financial diligence tells you what happened. It tells you the history of the business. But it cannot tell you what will happen next. It can’t tell you that the proprietary software platform is built on 10-year-old code that will cost $2M to rewrite next year. It can’t tell you that the “high-margin” subscription revenue is at risk because the product lacks critical features competitors have. It can’t tell you that a hidden cybersecurity vulnerability is one hack away from wiping out the company’s reputation. This is why Technology Due Diligence is no longer optional. It is the forward-looking radar that validates the sustainability of the earnings you are buying. Here is the business case for why Tech Diligence deserves a seat at the table alongside Financial and Legal diligence.

1. Validating the “Asset” (Is the Tech Real?)

For many tech-enabled service companies or SaaS platforms, the technology is the asset. If the code is bad, the asset is distressed. Financial diligence sees “$5M in R&D capitalization.” Tech diligence sees:

• Spaghetti Code: Software that is undocumented, unstable, and impossible to scale.
• Key Person Risk: A platform built by one genius developer who has no documentation and is planning to leave post-close.
• IP Issues: Core features built on open-source libraries with restrictive licenses that jeopardize your ownership.

The Value: We confirm that you are buying a scalable platform, not a “black box” liability.

2. Quantifying the “CapEx Shock” (Hidden Costs)

Financial models often assume IT costs will remain stable or grow linearly with revenue. This is rarely true in M&A. There is often a “CapEx Shock” post-close—a massive, one-time investment required to fix deferred maintenance.

• Replacing end-of-life servers.
• Migrating from a legacy ERP.
• Buying licenses for “Shadow IT” tools that were being expensed on personal credit cards.

The Value: We quantify these costs before you sign. You can use our “Remediation Budget” to negotiate a lower purchase price or set aside the necessary working capital.

3. Finding the “True” Synergies

Deal theses are often built on “Synergy” assumptions. “We will merge the two companies and save 20% on overhead.” But tech incompatibility kills synergies.

• If Company A uses Salesforce and Company B uses HubSpot, you can’t just “merge them” on Day 1. You face a costly data migration project.
• If Company A is on AWS and Company B is on Azure, you won’t get cloud volume discounts without a massive re-platforming effort.

The Value: We validate the synergy assumptions. We tell you realistically how long it will take to integrate systems and what it will cost, ensuring your deal model is accurate.

4. Assessing Scalability (The Growth Thesis)

You aren’t buying the company for what it is today; you are buying it for what it can become. If your investment thesis relies on “doubling revenue in 3 years,” can the technology stack handle it?

• Can the e-commerce site handle 10x the traffic?
• Can the manual warehouse process scale to 5 new locations without hiring 50 more people?

The Value: We stress-test the architecture. We tell you if the tech stack is a launchpad for growth or a bottleneck that will choke your expansion plans.

Authentic Bridge: Forensic Tech Diligence

At Authentic Bridge, we don’t just run a vulnerability scan and hand you a report. We act as forensic investigators for the deal team. As your M&A Technology Due Diligence Partner, we translate technical findings into financial impact.

• We quantify the risk: “This security gap is a $500k liability.”
• We estimate the roadmap: “You need to invest $1.5M in Year 1 to stabilize the platform.”
• We validate the upside: “This proprietary data asset could be monetized for an additional $2M/year.”

Don’t buy blind. Contact us today to add forensic technology diligence to your next transaction.