Technical Due Diligence in a Post-Pandemic Economy

As the availability of the COVID-19 vaccine rises, increased merger and acquisition (M&A) competition is widely anticipated over the next six to 12 months.

In its Global M&A Industry Trends report, global consulting company, PricewaterhouseCoopers (PWC), suggests that the pandemic has been a catalyst for high value and high volume deals, specifically within the digital and technology sectors.

The Dow Jones Industrial Average NASDAQ Composite, S&P 500, Nikkei 225 and Shanghai Stock Exchange are at or near record high numbers and Initial Public Offerings (IPOs) are booming.

An example of this is AirBnB which closed on its first day over 112% above its initial list price (Barrons). M&A deals are back on the rise and many buyers want to be the first to the finish line, even if that means making pre-emptive bids and accelerating Technical Due Diligence.

However, taking shortcuts does not give buyers the opportunity to determine the credibility of the technology being acquired – which can expose them to expensive, avoidable risks.

Technology is at the heart of many of today’s businesses but often the value of the systems, technical decision-making, coding and human capital are inadequately understood. Let’s compare this to buying a new home without hiring a surveyor. On one hand, it may take more time and investment to hire a qualified surveyor. On the other, the cost of the inspection is negligible if it saves you from purchasing that home from ‘The Money Pit’ which hosted unforeseen issues like electrical fires and a collapsed staircase. The most successful M&A buyers understand that self-inspection is risky, so they call on the expertise of Technical Due Diligence professionals to help evaluate and protect their investment before signing on the dotted line.

At Arishi, we champion the concept of Technical Due Diligence (TDD) for which we have pioneered many of the processes. TDD will, in fact, de-risk transactions by delivering a detailed picture of every aspect of a technology business, including the product, architecture, processes, and leadership. It helps to ensure that the objectives of an acquiring firm are met before finalising the investment and validates or denies any assumptions the investment firm has made prior, such as the scalability of the technology and its users. A thorough investigation of technological processes and capabilities through Due Diligence is the best way to avoid unnecessary risks such as poorly developed IT roadmaps or architectural faults. The only way to set accurate growth projections is to have an accurate representation of the technology or software company at hand.

Pierre Suhrcke, Chairman of Arishi, is an expert in technology M&A and former European General Partner of ABS Ventures, a secondary buy-out of Deutsche Bank’s venture business. Prior to this, Pierre spent 17 years at Deutsche Bank London and Frankfurt, notably as the Global Head of Risk Management and Managing Director of the venture business. He has been on the board of 20 successful companies in the US and Europe, with many of the businesses focused on risk. A leading fintech expert in Europe, Pierre has been investing in successful fintech firms since 2000 and he is currently a Professor of Venture Capital at Kozminski University in Warsaw.

Discussing his perspective on Due Diligence, Pierre explains: “For every Venture Capital or Private Equity Investor, Technical Due Diligence forms a key part of their investment decision. The quality of technology makes or breaks a company. Therefore, performing thorough Technical Due Diligence by specialist third parties such as Arishi makes sure that product, architecture, code and the processes have the required quality or otherwise highlights weaknesses which can be mitigated early on.”

Arishi’s approach:

Although there is no master Technical Due Diligence checklist for every M&A deal, we have narrowed down the types of assessments we deem necessary into nine categories:

• Technical Team
• Security
• Software
• Hardware Infrastructure
• Development Processes
• System Performance
• Support Processes
• Roadmap
• Data Capture/Storage

Our Technical Due Diligence and consultancy services are part of a specialist division supporting clients who wish to validate decisions around company valuation, investment, mergers and acquisitions. If you’re interested in making an investment or acquisition, let us take a deep dive into the technology. We’ll provide you with a thorough assessment to help you make a decision. Please download our Technical Due Diligence Brochure or Get in Touch to start the process.