Even when a target company's financials and market position look solid, unseen technology problems—like poorly written code, outdated architectures, fragile infrastructure, or security vulnerabilities—can become“ Trojan horses” that undermine the investment after the deal closes. Many M&A deals ultimately fail to meet their goals due to issues discovered too late; in fact, 62% of mergers and acquisitions fail to meet their financial objectives, with poor due diligence cited as a primary reason for failure. This is why thorough technical due diligence is crucial: it aims to uncover those hidden pitfalls across software, hardware, and IT processes before you sign on the dotted line, ensuring there are no nasty surprises post-acquisition.
Common “hidden” technical risks include things like technical debt (old, inefficient code or architectures that are expensive to maintain), compliance gaps (products not meeting required standards or regulations), security vulnerabilities (weaknesses that could be exploited by attackers), or scalability limits (systems that won’t handle future growth). These issues might not be obvious on the surface. For example, a software firm could have a polished app but internally use brittle code with minimal testing, or a hardware startup might be shipping globally without proper certifications in each market. Buyers understandably worry about such hidden problems — CTOs and investors are often “concerned about hidden technical debt, compliance issues, or security vulnerabilities” in target companies because any one of these can turn into a costly crisis down the road.
Failing to identify these risks early can lead to post-deal surprises that are expensive (or even impossible) to fix. Imagine discovering after an acquisition that the product you bought needs a complete overhaul to meet data privacy laws, or that its cloud infrastructure goes down regularly because it wasn’t designed with robust failover. Such oversights can quickly translate into lost revenue, customer churn, regulatory fines, or urgent unplanned engineering work. In extreme cases, these hidden flaws can derail the success of the merger itself. This is why investors often say “missed risks = lost capital.” A third-party diligence team can catch what internal teams overlook — before it becomes a six-figure problem. Skipping on thorough tech due diligence is essentially betting that nothing important has been overlooked, and history shows that’s a risky bet.
Thorough technical due diligence matters because it reveals these risks (and any hidden strengths) before a deal is finalized. A comprehensive diligence effort isn’t just a cursory code review or a checklist exercise; it involves expert engineers examining all the critical aspects of the target’s technology. This means delving into architecture and code quality, evaluating the security posture, verifying regulatory compliance, testing infrastructure resilience, assessing intellectual property and licenses, and scrutinizing the engineering team’s processes and skills. The goal is to have no blind spots in understanding the technology. Seasoned diligence providers adopt a holistic approach that looks “from software to compliance” across every technical layer — no silos, no blind spots in the review. This breadth is important because a company’s value can be undermined by problems in any layer, whether it’s an out-of-date firmware in an IoT device or a lack of disaster recovery planning for a cloud service. Only by examining everything can an acquirer avoid blind areas where a critical issue might be hiding.
Using experienced independent experts boosts the effectiveness of this process. Internal tech teams at the company being acquired might be too close to the product (or have incentives to downplay its problems), and buyers’ in-house teams may not have the time or specific expertise to probe every nook and cranny. In contrast, an impartial third-party firm brings fresh eyes and broad experience gleaned from evaluating many products and systems. Such a team is often engineer-led, meaning seasoned engineers who have hands-on experience designing, building, and scaling complex systems lead the review. They know from experience where risks often hide and how systems tend to fail, because they’ve seen similar technologies before. These experts combine structured frameworks (checklists, testing protocols, etc.) with real-world insight to uncover risks that a superficial review might miss. The independence of the auditors also adds credibility: their only agenda is to accurately assess the technology. An objective report from trusted external specialists carries more weight with investors and board members than an internal assessment that might gloss overissues. In short, independent expert due diligence provides a clear, unbiased view of the tech — exactly what you need to make a sound investment decision.
Importantly, uncovering problems isn’t about scuttling a deal, but about making a smarter deal. When thorough diligence finds risk areas, the buyer can respond constructively: negotiate a better price to account for necessary fixes, insist that certain issues be resolved before closing, or plan for additional investment post-acquisition to address the gaps. If a risk is too severe (for example, fundamentally insecure product design in a cybersecurity acquisition), the buyer has the chance to walk away before it’s too late. On the flip side, if diligence finds that the target’s technology is solid, that builds confidence to proceed and perhaps even justify a premium price. In both scenarios, the acquirer is better off for knowing the reality. They can form integration plans with eyes wide open. This upfront work pays dividends by avoiding regret down the line. As one of BLS’s core mantras puts it, “Prevent regret. Protect value.” Early risk detection leads to fewer surprises after closing, smoother integrations, and long-term ROI on the deal. In other words, investing in a proper technical audit now means a much lower chance of expensive disappointments later.
In summary, thorough technical due diligence is like an insurance policy for any tech-driven acquisition. It ensures you truly understand what you are buying. By illuminating the hidden technical risks (and confirming the strengths) of a target company, you can proceed with the deal confident that there won’t be any dark technology surprises waiting to surface. Given the high stakes of M&A, taking the time to “look under the hood” with expert help is not just prudent — it’s essential to protecting your investment and maximizing the chances of a successful, value-generating acquisition.