Technology Due Diligence Checklist for M&A: What PE Firms Must Evaluate

Technology due diligence in M&A is a systematic evaluation of a target company's IT infrastructure, cybersecurity posture, technical debt, vendor contracts, key person dependencies, and scalability to identify risks that affect valuation, integration costs, and deal viability. For private equity firms and strategic acquirers, overlooking technology risks can turn a promising acquisition into a costly liability.

Key takeaway: According to McKinsey & Company research, 76% of technology acquisitions fail to meet their financial objectives, while companies that perform thorough technology due diligence are 2.8 times more likely to achieve successful outcomes. With global M&A deal value reaching $3.4 trillion in 2024, the stakes for getting technology assessment right have never been higher.

Need technology due diligence for an acquisition? Preferred Data Corporation provides comprehensive Quality of Technology assessments for M&A transactions. BBB A+ rated with 37+ years of technology evaluation experience. Call (336) 886-3282 or request a consultation.

Why Technology Due Diligence Matters in 2026

Technology is no longer a back-office function. It drives value creation, operational efficiency, and competitive advantage. When technology due diligence is inadequate, acquirers discover costly surprises after closing.

According to Deloitte research, technology integration issues account for approximately 30% of failed mergers. The Institute for Mergers, Acquisitions, and Alliances (IMAA) reports that failed IT integration is a common culprit behind underwhelming M&A results, with overlapping technologies inflating operational costs well beyond initial estimates.

For acquisitions of North Carolina manufacturers, construction firms, and industrial businesses, technology risks are compounded by legacy operational technology (OT) systems, compliance requirements, and the need for rapid integration without disrupting production.

Infrastructure Age and Capacity Assessment

The first pillar of technology due diligence evaluates the physical and virtual infrastructure supporting the target's operations.

Hardware Inventory and Lifecycle

[ ] Complete inventory of servers, storage, and networking equipment
[ ] Age of each component relative to manufacturer end-of-life dates
[ ] Remaining warranty coverage and extended support costs
[ ] Current utilization rates vs. available capacity
[ ] Disaster recovery hardware and replication capabilities
[ ] Physical plant requirements (power, cooling, space)

Cloud Infrastructure

[ ] Current cloud providers and service levels
[ ] Monthly cloud spending and growth trajectory
[ ] Architecture review (well-architected framework compliance)
[ ] Data residency and sovereignty considerations
[ ] Reserved instance commitments and remaining terms
[ ] Migration readiness if provider change is contemplated

Network Architecture

[ ] Network topology documentation and accuracy
[ ] Bandwidth utilization at each location
[ ] ISP contracts, terms, and transferability
[ ] SD-WAN or MPLS connectivity between sites
[ ] Wireless infrastructure coverage and capacity
[ ] Remote access architecture and VPN capabilities

For manufacturing targets in the Piedmont Triad, Greensboro, or Charlotte areas, pay particular attention to network segmentation between IT and OT environments, as inadequate segmentation creates both security and integration risks.

Technical Debt Assessment

Technical debt represents the accumulated cost of shortcuts, deferred maintenance, and outdated approaches in a company's technology environment. It directly impacts integration timelines and post-acquisition investment requirements.

Software and Application Debt

[ ] Custom applications running on unsupported platforms
[ ] Legacy code without documentation or original developers
[ ] End-of-life operating systems still in production
[ ] Database platforms requiring migration or upgrade
[ ] Integration points dependent on deprecated APIs
[ ] Applications with known security vulnerabilities left unpatched

Process and Documentation Debt

[ ] Undocumented processes that exist only in employee knowledge
[ ] Missing or outdated network diagrams and system documentation
[ ] Lack of standardized change management procedures
[ ] Inconsistent configuration management across environments
[ ] Missing disaster recovery documentation and runbooks

Quantifying Technical Debt

Estimate the cost to remediate technical debt and factor it into your valuation model:

Critical debt (security/compliance risk): Must be addressed within 90 days post-close
High debt (operational risk): Should be addressed within 6 months
Medium debt (efficiency impact): Address within 12-18 months
Low debt (modernization opportunity): Address as part of long-term roadmap

Cybersecurity Posture Evaluation

According to BCG research, around 40% of deals did not close on time, with nearly two-thirds of delayed deals needing three extra months or more due to issues discovered during diligence. Cybersecurity findings are among the most common causes of delay.

Security Controls Assessment

[ ] Firewall configurations and rule set review
[ ] Endpoint protection coverage (all devices accounted for)
[ ] Email security and phishing protection capabilities
[ ] Multi-factor authentication deployment status
[ ] Vulnerability management program maturity
[ ] Penetration testing history and unresolved findings

Incident History

[ ] All security incidents in the past 36 months
[ ] Breach notification events and regulatory responses
[ ] Ransomware incidents and their resolution
[ ] Insurance claims related to cyber events
[ ] Ongoing litigation related to data breaches

Compliance Status

[ ] Current compliance certifications (SOC 2, ISO 27001, CMMC)
[ ] Compliance gaps identified in recent audits
[ ] Regulatory requirements by industry (HIPAA, PCI DSS, DFARS)
[ ] Data privacy obligations and consent management
[ ] Cross-border data transfer mechanisms

For defense contractors in the Research Triangle or Piedmont Triad, CMMC compliance status is a critical valuation factor. Non-compliance may prevent the target from bidding on future DoD contracts.

Evaluating a target's cybersecurity posture? PDC provides independent cybersecurity assessments for M&A transactions across North Carolina. Call (336) 886-3282 or schedule an assessment.

Vendor Contracts and Licensing

Third-party vendor relationships create both value and risk in acquisitions. Misunderstood licensing terms can generate significant post-close liabilities.

Software Licensing Review

[ ] All enterprise software agreements and remaining terms
[ ] License transfer provisions (change of control clauses)
[ ] True-up audit exposure for under-licensed software
[ ] Volume licensing agreements approaching renewal
[ ] Open source software usage and license compliance
[ ] SaaS subscriptions and cancellation terms

Service Provider Contracts

[ ] Managed IT services agreements and SLA terms
[ ] Cloud hosting contracts and commitment periods
[ ] Telecommunications contracts and early termination fees
[ ] Maintenance agreements for critical systems
[ ] Consulting engagements with ongoing deliverables

Licensing Risk Factors

Change of control clauses that require vendor consent for transfer
Non-transferable licenses that must be repurchased post-acquisition
Audit rights that vendors may exercise during ownership transitions
Volume discounts that reset when entities merge
Geographic restrictions that limit expansion plans

Key Person Dependencies

Technology knowledge concentrated in one or two individuals creates significant operational risk. For smaller targets, including many North Carolina manufacturing and industrial businesses, this is often the most underestimated risk.

Identifying Key Person Risk

[ ] Who maintains the ERP system, and is there backup coverage?
[ ] Who understands the custom integrations between systems?
[ ] Who has administrator access to critical platforms?
[ ] Who manages vendor relationships and knows contract history?
[ ] Who understands the manufacturing execution system (MES) or SCADA systems?
[ ] Are passwords and access credentials documented beyond individual knowledge?

Mitigation Strategies

Retention agreements for critical technical staff during transition
Knowledge transfer timelines built into integration planning
Documentation requirements as a condition of close
Redundancy plans for single-point-of-failure personnel
External support contracts to bridge key person transitions

Scalability Assessment

Technology must support the acquirer's growth thesis. Systems that work for a 50-person company may collapse under 200 users or multiple locations.

Growth Readiness Evaluation

[ ] Can the ERP/core systems handle 2-3x current transaction volumes?
[ ] Is the network architecture designed for multi-location expansion?
[ ] Are cloud resources configured for elastic scaling?
[ ] Can the security infrastructure support additional users and sites?
[ ] Are integrations built on scalable, API-driven architectures?
[ ] Is the IT team structured to support growth, or is it already at capacity?

Platform Add-On Considerations

For private equity firms building manufacturing platforms in North Carolina, evaluate:

Compatibility of target's ERP with existing platform companies
Integration complexity between different manufacturing systems
Network connectivity options between Piedmont Triad, Charlotte, and Raleigh facilities
Unified cybersecurity architecture across portfolio companies
Common cloud infrastructure for shared services

Integration Complexity Assessment

Understanding integration complexity before closing allows accurate budgeting and timeline planning.

Integration Categories

Quick Wins (30-90 days):

Email system consolidation
Security policy alignment
VPN and remote access standardization
Backup system integration
Helpdesk and support channel unification

Medium Complexity (3-6 months):

Network infrastructure merging
Identity and access management consolidation
Cloud environment optimization
Endpoint management standardization
Vendor contract consolidation

High Complexity (6-18 months):

ERP system migration or integration
Custom application modernization
OT/IT network convergence
Data warehouse consolidation
Complete infrastructure refresh

Budget Estimation Framework

Based on target company size, plan for these typical technology integration investments:

10-25 employees: $50,000-$150,000 in integration costs
25-100 employees: $150,000-$500,000 in integration costs
100-250 employees: $500,000-$2,000,000 in integration costs

These ranges assume moderate technical debt. Heavy legacy environments or significant compliance gaps can double or triple these estimates.

The Technology Due Diligence Process

Timeline Integration with Deal Process

Technology due diligence should begin as early as possible in the deal process:

Preliminary assessment (LOI stage): High-level technology risk identification from publicly available information and management presentations
Detailed diligence (exclusivity period): Full infrastructure, security, and integration assessment
Pre-close planning (signing to close): Integration roadmap development and Day 1 readiness

Data Request List Essentials

Request these documents from the target early in the process:

Network diagrams and infrastructure documentation
IT asset inventory with age and lifecycle status
Software license agreements and subscription lists
Security audit reports and penetration test results
IT organizational chart and key personnel
IT budget (current year and historical)
Incident reports from the past 36 months
Vendor contract summaries with terms and renewal dates
Disaster recovery and business continuity plans
Compliance certifications and audit findings

Red Flags That Should Concern Acquirers

Watch for these technology red flags during diligence of North Carolina targets:

No documentation: If the IT environment is undocumented, expect higher integration costs and key person risk
Single vendor dependency: Over-reliance on one provider limits negotiating leverage
Aging infrastructure: Servers or switches older than 5 years signal deferred investment
No backup testing: Backup systems that have never been tested for restoration
Shadow IT: Employee-provisioned cloud services outside IT's control
Compliance gaps: Outstanding audit findings or expired certifications
Flat network architecture: No segmentation between user, server, and OT networks
No MFA: Lack of multi-factor authentication on critical systems

How PDC Supports M&A Technology Diligence

Preferred Data Corporation provides comprehensive technology due diligence services for acquisitions throughout North Carolina and the Southeast:

Pre-LOI screening: Rapid technology risk assessment from limited information
Full diligence: Comprehensive infrastructure, security, and scalability evaluation
Integration planning: Detailed 90-day and 12-month technology integration roadmaps
Post-close execution: Hands-on integration management through stabilization
Platform building: Technology standardization across portfolio company groups

Our team has evaluated technology environments for manufacturers, construction firms, and industrial businesses across High Point, Greensboro, Charlotte, Winston-Salem, Raleigh, and Durham.

Frequently Asked Questions

How long does technology due diligence take?

For a typical North Carolina SMB target (25-100 employees), comprehensive technology due diligence requires 2-4 weeks of active assessment. This includes data request, on-site evaluation, security scanning, and report development. Expedited assessments for time-sensitive transactions can be completed in 7-10 business days with appropriate access.

What does technology due diligence typically cost?

Costs range from $15,000-$50,000 for SMB targets, depending on complexity, number of locations, and depth of assessment required. This investment typically identifies 5-20x its cost in hidden technology liabilities or integration savings.

Should technology due diligence be done by the target's existing MSP?

No. Independent assessment is essential for objective findings. The target's existing IT provider has inherent conflicts of interest, as they may downplay issues they are responsible for or overstate risks to justify continued engagement post-acquisition.

What technology risks most commonly kill M&A deals?

The most common deal-breakers include undisclosed security breaches, massive unremediated compliance gaps, critical systems with no documentation or backup, and infrastructure requiring complete replacement within 12 months of close. More commonly, technology findings do not kill deals but significantly adjust valuation or require escrow holdbacks.

How do we evaluate technology risk for manufacturing targets specifically?

Manufacturing targets require additional assessment of OT systems (PLCs, SCADA, HMIs), ERP manufacturing modules, quality management systems, production scheduling software, and shop floor data collection. These systems often run on legacy platforms with significant upgrade costs that general IT assessments may miss.

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Contact PDC - Request a technology diligence proposal

Protect your investment with thorough technology due diligence. Preferred Data Corporation has evaluated technology environments for acquisitions across North Carolina since 1987. BBB A+ rated with deep manufacturing and industrial expertise. Call (336) 886-3282 or request a diligence proposal today.