A Quality of Technology (QoT) report is a comprehensive assessment of a target company's technology environment conducted during M&A due diligence, analogous to a Quality of Earnings (QoE) report for financial diligence. It evaluates infrastructure health, cybersecurity posture, technical debt, scalability limitations, team capabilities, and integration complexity to inform deal valuation and post-close investment planning.
Key takeaway: According to McKinsey research, companies that perform technology due diligence are 2.8 times more likely to achieve successful M&A outcomes. With global deal value reaching $3.4 trillion in 2024 and technology increasingly driving business value, QoT reports have become essential tools for private equity firms and strategic acquirers evaluating manufacturing and industrial targets.
Need a Quality of Technology assessment? Preferred Data Corporation provides QoT reports for M&A transactions throughout North Carolina. BBB A+ rated with 37+ years of technology evaluation experience. Call (336) 886-3282 or request a proposal.
QoT Reports vs. Traditional IT Audits
Understanding how a Quality of Technology report differs from a standard IT audit helps acquirers request the right deliverable.
Traditional IT Audit
A standard IT audit evaluates:
- Compliance with specific standards (SOC 2, ISO 27001)
- Policy adherence and control effectiveness
- Point-in-time security posture
- Regulatory requirement satisfaction
Limitation for M&A: IT audits confirm whether current controls work but do not assess whether the technology can support the buyer's growth thesis, integration plans, or future operating model.
Quality of Technology Report
A QoT report evaluates:
- Whether technology supports the acquisition's value creation thesis
- Total cost of ownership including hidden liabilities
- Integration complexity and timeline estimates
- Technical debt requiring post-close investment
- Key person dependencies creating operational risk
- Scalability limitations that constrain growth plans
- Cybersecurity risks that could become liabilities
M&A value: QoT reports directly inform deal valuation adjustments, integration budgets, and post-close technology roadmaps.
According to Crosslake's technology diligence practice, a thorough technology assessment reviews IT infrastructure for compatibility, scalability, security, performance, and other technical factors that affect the target's value and the acquirer's integration costs.
What a QoT Report Covers
A comprehensive Quality of Technology report for a North Carolina manufacturing or industrial acquisition addresses seven major domains.
Domain 1: Infrastructure Assessment
What is evaluated:
- Server infrastructure (age, capacity, supportability)
- Network architecture (design, redundancy, performance)
- Cloud services (providers, configurations, costs)
- End-user computing (devices, standardization, lifecycle)
- Data center or server room (power, cooling, physical security)
- Telecommunications (internet, WAN, phone systems)
Key questions answered:
- How old is the infrastructure and what is the remaining useful life?
- What capital investment is needed in the next 12-24 months?
- Is the infrastructure properly sized for current and projected workloads?
- Are there single points of failure in critical systems?
For manufacturers in the Piedmont Triad, infrastructure assessment must include OT systems (PLCs, SCADA, HMIs) that are often overlooked in standard technology reviews but represent significant replacement costs and integration complexity.
Domain 2: Cybersecurity Posture
What is evaluated:
- Perimeter security (firewalls, intrusion detection)
- Endpoint protection (antivirus, EDR, patch levels)
- Identity and access management (MFA, privilege controls)
- Security monitoring and incident response capabilities
- Previous incidents and breach history
- Compliance status (CMMC, HIPAA, PCI DSS)
- Vulnerability scan results and penetration testing history
Key questions answered:
- Are there undisclosed security incidents that create liability?
- What security investments are needed immediately post-close?
- Does the target meet the acquirer's security standards?
- Are there compliance gaps that affect contract eligibility?
According to BCG research, approximately 40% of deals experience timeline delays, often due to security findings discovered during diligence.
Domain 3: Technical Debt Quantification
What is evaluated:
- Systems running on unsupported platforms (Windows Server 2012, old Linux)
- Applications with no documentation or original developers
- Custom code with known quality issues
- Deferred maintenance on infrastructure components
- Integration methods using deprecated protocols or APIs
- Manual processes that should be automated
Key questions answered:
- What is the estimated cost to remediate critical technical debt?
- Which technical debt items create security or compliance risk?
- What is the timeline to modernize critical systems?
- Does technical debt affect the target's ability to serve customers?
Quantification framework:
| Debt Category | Risk Level | Typical Remediation Cost |
|---|---|---|
| Security-critical (unsupported OS) | Critical | $50K-$200K |
| Compliance-affecting (audit gaps) | High | $25K-$100K |
| Operational (manual processes) | Medium | $10K-$75K |
| Modernization (outdated but functional) | Low | $25K-$150K |
Domain 4: Scalability Analysis
What is evaluated:
- Can current systems handle 2-3x growth?
- What breaks first as the business scales?
- Are architectures designed for multi-site operations?
- Can the ERP handle additional transaction volumes?
- Is the network designed for new location additions?
- Are licensing models compatible with growth plans?
Key questions answered:
- What technology investments are needed to support the deal thesis?
- At what growth point do current systems require replacement?
- Can the technology support add-on acquisitions for platform building?
- What is the cost to scale technology for the projected growth plan?
For private equity firms building manufacturing platforms in North Carolina, scalability assessment is critical. A High Point furniture company's IT may work fine for one location but collapse when integrating a Charlotte distributor and a Greensboro supplier.
Domain 5: Team and Organizational Assessment
What is evaluated:
- IT team structure, skills, and capacity
- Key person dependencies (who knows what)
- Vendor relationships and management capability
- IT budget adequacy and spending patterns
- Strategic planning maturity
- Change management capabilities
Key questions answered:
- Can the IT team support the combined organization?
- Who are the irreplaceable knowledge holders?
- Are vendor relationships transferable?
- Is the IT budget appropriate for the environment's needs?
- What hiring or augmentation is needed post-close?
Domain 6: Application and Data Assessment
What is evaluated:
- ERP system capabilities and configuration
- Manufacturing-specific systems (MES, quality, scheduling)
- Custom applications and their business criticality
- Data quality, accessibility, and governance
- Integration architecture between systems
- Licensing terms and transferability
Key questions answered:
- Which applications are redundant with the acquirer's portfolio?
- What is the ERP integration or replacement timeline?
- Are there licensing change-of-control clauses?
- Is business data accessible for reporting and analytics?
Domain 7: Integration Complexity Estimation
What is evaluated:
- Overlap between acquirer and target technology stacks
- Integration dependencies and sequencing requirements
- Resource requirements for integration execution
- Risk factors that could delay integration
- Quick wins achievable in the first 90 days
- Long-term initiatives requiring significant investment
Key questions answered:
- What is the total estimated integration cost?
- What is the realistic integration timeline?
- What synergies can be captured and when?
- What are the highest-risk integration activities?
Planning an acquisition? PDC provides comprehensive QoT assessments for manufacturing and industrial targets across North Carolina. Call (336) 886-3282 or discuss your needs.
When QoT Reports Are Needed in the Deal Process
LOI Stage (High-Level Screen)
Before signing a Letter of Intent, a preliminary technology screen identifies potential deal-breakers:
- Obvious infrastructure age concerns
- Known compliance failures
- Critical vendor dependencies
- Major security gaps apparent from external scanning
Duration: 3-5 business days Cost: $5,000-$15,000
Exclusivity Period (Full Assessment)
During the exclusivity period, conduct the comprehensive QoT assessment:
- Full infrastructure, security, and scalability evaluation
- On-site inspection and staff interviews
- Technical testing and vulnerability scanning
- Detailed report with findings and recommendations
Duration: 2-4 weeks Cost: $20,000-$75,000 (depending on target complexity)
Pre-Close (Integration Planning)
After signing, develop the integration roadmap:
- Day 1 readiness planning
- 90-day integration playbook
- Long-term technology roadmap
- Budget and resource planning
Duration: 2-3 weeks Cost: $10,000-$30,000
QoT Report Deliverables
A complete Quality of Technology report includes:
Executive Summary
- Overall technology risk rating (Green/Yellow/Red)
- Top 5 findings by business impact
- Estimated technology integration costs
- Recommended deal valuation adjustments
- Critical pre-close actions required
Detailed Findings
- Domain-by-domain assessment with evidence
- Risk ratings for each finding
- Remediation recommendations and cost estimates
- Timeline estimates for each remediation item
- Dependencies between findings
Integration Roadmap
- 90-day quick wins with costs and resources
- 6-month priority projects
- 12-18 month strategic initiatives
- Total integration budget estimate
- Resource requirements (internal and external)
Appendices
- Technical architecture diagrams
- Asset inventories and lifecycle analysis
- Vendor contract summaries
- Security scan results
- Interview notes and documentation gaps
Who Should Conduct QoT Assessments
Independence is critical for credible QoT reports. The target's existing MSP or internal IT team has inherent conflicts of interest.
Qualified QoT Providers Should Have:
- Independence from both buyer and target
- Manufacturing and industrial technology experience
- Cybersecurity assessment capabilities
- M&A transaction experience
- Understanding of integration planning
- Local presence for on-site assessment in Durham, Raleigh, Charlotte, Greensboro, or Winston-Salem
Red Flags in QoT Provider Selection
- No manufacturing-specific experience
- Cannot provide M&A transaction references
- No cybersecurity capabilities
- Remote-only assessment (no on-site inspection)
- Conflict of interest with post-close services (unless disclosed)
- Template-based reports without target-specific analysis
How PDC Delivers QoT Assessments
Preferred Data Corporation provides Quality of Technology reports for manufacturing and industrial acquisitions throughout North Carolina:
- Independence: Objective assessment regardless of post-close engagement
- Manufacturing expertise: 37+ years evaluating manufacturing technology environments
- Comprehensive scope: Infrastructure, security, scalability, team, and integration
- Local presence: On-site assessment capability across the Piedmont Triad, Charlotte, Raleigh, and Durham
- Actionable output: Clear recommendations with cost estimates and timelines
- Integration support: Optional post-close integration management services
Frequently Asked Questions
How does a QoT report differ from a Quality of Earnings (QoE) report?
A QoE report normalizes financial statements to reveal sustainable earnings. A QoT report normalizes the technology environment to reveal true technology costs, hidden liabilities, and investment requirements. Both inform deal valuation, but QoT focuses on technology-specific risks and opportunities rather than financial adjustments.
Is a QoT report worth the cost for a small acquisition ($5-$20M deal value)?
Yes. Technology surprises in small deals have proportionally larger impact on returns. A $50,000 QoT assessment that identifies $500,000 in hidden technology liabilities or enables a $200,000 valuation adjustment pays for itself immediately. Small deals often have the highest technology risk because smaller targets typically have more technical debt and fewer IT resources.
What information do we need from the target to conduct a QoT assessment?
Prepare a data request list including: network diagrams, asset inventories, software license agreements, security audit reports, IT budget history, vendor contracts, organizational charts, incident reports, and disaster recovery plans. Expect 30-50% of this documentation to be incomplete or outdated, which itself is a finding.
Can the QoT provider also handle post-close integration?
Yes, and this is often efficient because the QoT team already understands the environment. However, disclose this potential engagement to the buyer and ensure the QoT report maintains objectivity regardless of post-close opportunities. At PDC, we maintain assessment integrity while offering optional integration services.
How long before closing should we start the QoT assessment?
Begin as early as possible during the exclusivity period. A comprehensive QoT assessment requires 2-4 weeks plus scheduling coordination with the target's IT team. Starting at least 6 weeks before the projected close date provides time for findings to inform final negotiations and integration planning.
Related Resources
- Technology Due Diligence Checklist for M&A
- Post-Merger IT Integration Playbook
- Managed IT Services - Post-acquisition IT management
- Cybersecurity Services - Security assessment for M&A
- Contact PDC - Request a QoT proposal
Invest with technology confidence. Preferred Data Corporation delivers Quality of Technology assessments that protect your acquisition investments. Founded in 1987, BBB A+ rated, serving North Carolina's M&A market. Call (336) 886-3282 or request your QoT proposal today.