Technology & Software Due Diligence

Technology & Software Due-Diligence with digatus

Technology and software-driven business models are increasingly dominating international M&A activity and contribute continuously to value in transactions and deals. At the same time, decision-makers and M&A professionals are increasingly faced with the challenge of identifying the right technologies for their specific use case and drawing the right conclusions for the business case.

Based on many years of international experience in the support and evaluation of technology or software-oriented transactions, digatus acts alike as a trusted advisor for strategists, private equity or (corporate) venture capital investors. Our approach is a combination of experience-based analysis methodology and the use of automated tool frameworks in the context of individual partnerships, especially in software due diligence.

Compared to classic IT due diligence, the focus is even more comprehensively on the individual technological characteristics of the target and its ability to successfully realize the expected contributory values. Especially in cases of investments in early-stage and fast-growing technology companies and software start-ups, a reliable decision-making basis for the software technology applied is of great importance.

Topic areas

Data Room Analysis

The analysis of the available data room is the basis for the valuation of the target. By means of baselining, the key points of the transaction are identified, and the necessary scope and its impact are defined. Especially with regard to the legal and regulatory requirements as well as to the situation regarding the use of open source license models, many aspects can already be assessed by data room analysis.

Technology Stack

Based on the target’s business plans and its functional requirements, an analysis and evaluation of the selected technology platform takes place. In particular, the comparison of growth ambitions in connection with the selected technology are decisive criteria for an evaluation. In addition, possible advantages or disadvantages of the selected frameworks are considered, as well as their ability to scale in the context of cloud environments, where applicable.

Software Due Diligence

Software Due Diligence is a special component of Technology Due Diligence. The focus is hereby on the actual source code of the target and its analysis. Depending on the scope, required depth of assessment and complexity, this process can be carried out either as a manual procedure within the framework of workshops, or using specially developed software tools for detailed analysis of the complete codebase.

In the latter case, digatus works closely with the solution provider Cape of Good Code, whose intelligent software framework enables a comprehensive analysis of technical dependencies, open-source risks, technical debt, and other security aspects. A unique combination of interview techniques and automated analysis is used to obtain the most comprehensive picture possible.

Team

In addition to the technical issues of the software landscape and codebase, also the human factor should not be underestimated. In terms of resilient growth cases, it is important to ensure that processes, skills, and leadership aspects are available in the necessary form to be able to successfully pursue the necessary development roadmap with the existing and future growing team.

Operations

Secure and stable operations processes are a core element of value creation, especially for SaaS products and related solutions in which the target assumes operational responsibility for customer data. In the associated investigation, procedural regulations are evaluated, the implementation of and compliance with security mechanisms are analyzed, and exception scenarios derived from reality are run through. The aim is always to identify potential weaknesses and, by making them transparent, to highlight and evaluate risks from the investor’s point of view at an early stage.

Business Case

The basis for every investment in a new technology or software is a well-founded business case. Based on the respective investment thesis, we evaluate the assumptions and financials and compare their values with the technological aspects and the roadmap of the target. Is it possible to achieve the desired goal with the planned investment, is the planned runway sufficient for the challenges still to come and what market opportunities can be expected with the product?

Deriving from the respective due diligence, our clients receive due diligence reports along with statements and resilient assessments on the KPIs agreed for the transaction in each case. Depending on the type of investment and the target company, different modules can be selected for consideration, which are reflected in the report. The results presented provide a solid basis for a fair assessment of expected value growth, scaling ambitions and potential technological, commercial, or business risks.

Our Due Diligence Experts

For further questions or discourse on other typical challenges of a Technology Due Diligence, please contact our experts:

Carl-Friedrich Heintz
Managing Director
IT Consulting, CoFounder

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Technology & Software Due Diligence