Private equity firms and search funds acquiring North Carolina manufacturing and industrial companies consistently underestimate technology risks. A target company's impressive revenue growth can mask critical IT problems - technical debt, cybersecurity vulnerabilities, licensing liabilities, and integration complexity - that destroy post-acquisition value.
Key takeaway: According to McKinsey research, over 70% of M&A deals fail to achieve expected synergies. A Beyond M&A study found that 40-60% of expected synergies are directly linked to IT integration success, yet technology considerations are frequently undervalued during acquisition.
Evaluating an acquisition? Preferred Data provides expert IT due diligence for private equity and strategic buyers. Call (336) 886-3282 or schedule your consultation.
Hidden Technology Risks That Kill Deals
Traditional due diligence focuses on financials, legal, and operations. Technology assessment often receives superficial attention - until post-close surprises emerge.
Technical Debt
Legacy systems held together with custom code and workarounds may function today but require massive investment to maintain, scale, or integrate. According to IMAA research, technology modernization costs discovered post-close frequently exceed initial estimates by 50-100%, particularly for ERP replacement and legacy system migration.
Cybersecurity Exposure
Undisclosed breaches, inadequate controls, and compliance gaps create liability. For defense contractors, failure to meet CMMC requirements can void government contracts representing significant revenue.
Licensing Liabilities
Software audit exposure is common. Companies running unlicensed software or violating enterprise agreements face six-figure true-up costs that rarely appear in financial statements.
Integration Complexity
Bringing acquired companies onto buyer platforms costs more and takes longer than projections assume. Integration scope creep is the norm, not the exception.
What Effective IT Due Diligence Covers
Comprehensive technology assessment examines:
Infrastructure Assessment
- Network architecture and capacity
- Server and storage infrastructure age and condition
- Cloud services inventory and contracts
- Disaster recovery capabilities
Application Portfolio
- Business-critical application inventory
- Custom development and technical debt
- Vendor relationships and contracts
- Integration points and dependencies
Cybersecurity Posture
- Vulnerability assessment results
- Security policies and controls
- Incident history and response capabilities
- Compliance status (CMMC, NIST, SOC 2)
IT Organization
- Team structure and capabilities
- Key person dependencies
- Vendor management practices
- Documentation quality
Learn about Preferred Data's M&A technology services
Red Flags That Require Deeper Investigation
During due diligence, these findings warrant concern:
- IT budget as percentage of revenue significantly below industry benchmarks
- No documented disaster recovery plan or testing
- Single IT person managing all systems
- Legacy systems running unsupported software versions
- No formal cybersecurity program or recent assessments
- Significant custom development without documentation
Any of these can translate to material post-close investments not reflected in deal models.
The Due Diligence Timeline
Technology due diligence fits within standard M&A timelines:
Week 1-2: Documentation Review
- IT budgets and contracts
- Network diagrams and asset inventories
- Security policies and audit reports
Week 2-3: Technical Assessment
- Infrastructure evaluation
- Application portfolio analysis
- Cybersecurity posture assessment
Week 3-4: Findings and Recommendations
- Risk identification and quantification
- Integration planning inputs
- Purchase agreement considerations
Preferred Data delivers actionable findings that inform deal structure, purchase price adjustments, and post-close planning.
Frequently Asked Questions
How much does IT due diligence cost?
According to industry benchmarks, technology due diligence typically costs $25,000-$75,000 for mid-market deals, with KPMG research indicating $50,000-$150,000 for complex technology acquisitions. This investment regularly identifies issues worth multiples of the assessment cost. Preferred Data provides fixed-fee proposals after understanding deal scope.
Can IT issues kill a deal?
Yes. Cybersecurity breaches, compliance failures, and massive technical debt have caused deals to fail or require significant repricing. More commonly, IT findings inform purchase price adjustments or escrow requirements.
Do you support post-close integration?
Absolutely. Preferred Data provides post-merger IT integration services including platform migration, security remediation, and ongoing managed IT support. Many PE firms retain us from due diligence through exit.
Protect Your Investment
North Carolina's manufacturing and industrial sectors attract significant private equity interest. Piedmont Triad, Charlotte, and Raleigh markets see active deal flow across manufacturing, distribution, and industrial services.
Preferred Data brings 37 years of manufacturing technology expertise to M&A due diligence. We understand the systems these companies run and the risks they carry.
Get expert IT due diligence:
- Phone: (336) 886-3282
- Email: Contact us
- Address: 1208 Eastchester Drive, Suite 131, High Point, NC 27265
Serving private equity firms, search funds, and strategic acquirers across North Carolina.
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