Conducting Technology Due Diligence: Avoid Costly Mistakes in Acquisitions

What’s worse than overpaying for a deal? Getting blindsided by a Trojan Horse—except instead of Greek soldiers, it’s packed with unstable systems, outdated architecture, and a mountain of hidden costs ready to detonate. M&A moves fast, but skipping a proper technical assessment isn’t just a gamble—it’s an open invitation for disaster.

In this article, we’re pulling back the curtain on the common pitfalls of Technology Due Diligence and how to sidestep them—so you don’t end up paying top dollar for someone else’s Trojan Horse full of technical debt.

Pitfall 1: Misalignment with Strategic Objectives

Cool tech is worthless if it doesn’t move your business forward. Tech Due Diligence is about making sure they work for you. Misaligned systems, lurking technical debt, and inflexible architectures don’t just slow you down—they derail growth. If the technology doesn’t back your strategic vision, you’re not making an investment—you’re buying a headache.

Signs of problems you can spot:

• The target’s product roadmap conflicts with your strategic goals.
• Technology choices don’t align with your company’s preferred tech stack or future direction.
• Key stakeholders from both sides have differing expectations for the acquisition’s outcomes.
• Minimal flexibility in the target company’s architecture to pivot or scale according to your strategic needs.
• Resistance from the target’s leadership when discussing future integration or shared objectives.

Key Risks:

• Missed Synergies: Redundant systems create inefficiencies across your portfolio.
• Operational Inefficiencies: Systems that don’t align with your strategy underperform, reducing value realization.
• Escalating Costs: Replacing misaligned systems inflates post-acquisition budgets.

‍Pitfall 2: Overlooking Legal and Regulatory Compliance

Compliance isn’t optional. Overlooking regulatory gaps, unvetted open-source dependencies, or cross-border data flows can expose your company to lawsuits, fines, and reputational damage.

Signs of problems:

• No recent security audits or reluctance to share results.
• Use of outdated libraries with known vulnerabilities.
• Vague or incomplete compliance documentation, especially in regulated industries.

‍Key Risks:

• Legal Liabilities – Non-compliance with regulations like GDPR, HIPAA, or PCI DSS can lead to significant financial penalties and legal disputes.
• Data Residency Issues – Improper handling of cross-border data transfers may violate jurisdictional regulations, creating integration roadblocks.
• Unverified Third-Party Integrations – Dependencies on external APIs, SaaS tools, or proprietary software can introduce compliance risks related to licensing agreements and data-sharing policies.

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Make sure the deal's technical foundation is strong

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‍Pitfall 3: Underestimating Integration and Compatibility Challenges

Even if both companies have solid technology, combining two distinct ecosystems often reveals hidden hurdles. For example, we once worked with a buyer who discovered post-acquisition that the acquired company's data formats were entirely incompatible, requiring months of reengineering to achieve basic interoperability. These issues aren’t just technical—they impact timelines, budgets, and morale.

Signs of problems you can spot:

• The target company uses proprietary or highly customized solutions that are difficult to adapt.
• No clear documentation on APIs or data exchange protocols.
• Systems rely on outdated technologies that may not play well with your existing infrastructure.
• Pushback or uncertainty from the target’s tech team when asked about integration timelines.
• Red flags in initial integration tests, such as data inconsistencies or communication lags between systems.

Key Risks:

• Delays – Incompatible systems slow down integration, postponing ROI and business value realization.
• Growing Costs – Addressing major compatibility issues post-acquisition requires unplanned fixes, draining budgets, and delaying strategic initiatives.
• Operational Breakdowns – Misaligned workflows, system mismatches, or data silos disrupt day-to-day operations.

While Tech DD does not conduct integration testing or implementation, it provides structured insights on compatibility risks that allow acquirers to anticipate challenges and make informed decisions on post-merger technology alignment.

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Identify compatibility issues beforehand

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Pitfall 4: Inadequate Assessment of Scalability

Inadequate assessment of scalability is a common trap. We’ve seen cases where the target company’s demo environment worked flawlessly but crumbled under real-world user volumes post-acquisition. One client acquired a platform expecting it to handle 10x user growth, only to discover the database architecture couldn’t support concurrent transactions beyond a certain threshold, leading to emergency re-architecting.

 Assessing scalability isn’t just about asking if it can scale—it’s about seeing the proof, understanding the architecture, and knowing the limits before those limits become your problem.

Signs of problems:

• Frequent system outages or slow load times under high user loads during demos.
• Vague answers to questions about scaling plans or infrastructure.
• Overreliance on outdated technology or monolithic architectures.
• Performance metrics presented without real-world stress test results.
• Scaling is dependent on manual interventions rather than automated processes.
• Limited or no use of cloud-based scalability features.

‍Key Risks:

• Growth Bottlenecks: Systems that can’t scale stall expansion.
• Unexpected Costs: Retrofitting outdated technology disrupts operations and inflates budgets.
• Innovation Barriers: Inflexible systems block the adoption of AI, cloud computing, and other advanced technologies.

‍Pitfall 5: Ignoring Cybersecurity

You can't skip on cybersecurity—it's the backbone of everything. Buying a company without checking its security is like getting a car without looking at the brakes first.

Signs of problems:

• No documented incident response plans or history of handling security breaches.
• Outdated security protocols.
• Lack of multi-factor authentication.
• Missing recent penetration tests or outdated vulnerability scans. Make sure you see the latest penetration test results. If they hesitate, that's a red flag.
• Relying too much on default settings without beefing up security against common attacks.

‍Key Risks:

• Data breaches that wreck reputations.
• Legal headaches from compliance failures.
• Operational shutdowns due to cyberattacks.

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Ensure your next deal is safeguarded with a thorough security audit

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Don’t Let Tech Be an Afterthought

Here’s a quick recap of the pitfalls to avoid:

1. Misaligned tech: If your tech doesn’t fit with your growth, it’s not an asset—it’s a liability. Don’t buy someone else’s outdated problem.
2. Compliance gaps: Skipping this step is like handing out free fines and lawsuits. You’ll regret it.
3. Integration headaches: Think things will just “work”? Get ready for your budget and timeline to blow up.
4. Scalability failure: Systems that can’t scale are the roadblocks that keep you from moving forward. Don’t wait until you’re stuck.
5. Cybersecurity oversights: A single breach can destroy your reputation and your investment in one go. And hackers are waiting.

Technical Due Diligence helps you spot the risks before they become your issues.

What’s next?

• Get Tech Due Diligence set up: Tailor your checklist to find exactly what could go wrong.
• Bring in the right experts: You need a team that doesn’t just skim the surface—they go deep.

As a strategic buyer, you deserve more than surface-level insights. Go beyond the pitch decks and marketing gloss. Dig deeper. Talk to engineers, get under the hood, and challenge optimistic timelines. A little diligence now can save you a world of trouble later.