Technical Due Diligence: How to Do It, What to Check, and the Red Flags That Sink Deals

Done properly, it tells you whether the technology can deliver the business case you’re paying for, where the liabilities are, and what they’ll cost to fix.

In a software-led deal, most of the risk is invisible on a spreadsheet. The financials can look healthy and the demo can run beautifully, while the codebase underneath stays fragile, undocumented, and one resignation away from a crisis.

That gap between the commercial story and the technical reality is what wrecks acquisitions. KPMG’s deal advisory research found that 62% of deals fail to meet their financial objectives, with weak due diligence repeatedly named as a leading cause.

Studies reviewed by the Harvard Business Review put the M&A failure rate between 70% and 90%. The money at stake keeps rising too.

ONS figures show inward M&A into UK companies reached £27.4 billion in the final quarter of 2025, the highest level since 2021. The more software sits at the heart of those deals, the more a technical view of the target matters.

Technical due diligence (often shortened to TDD or tech DD) is how you close that gap before you sign. This guide covers what it assesses, how the process works, how findings are scored, the red flags that should make you pause, realistic UK costs and timelines, and how a structured software technical due diligence review is run.

What Is Technical Due Diligence?

Technical due diligence is an independent review of a target company’s technology to confirm whether it is reliable, secure, scalable and maintainable enough to justify the deal.

It sits alongside financial and legal due diligence, but focuses on the thing that increasingly holds most of the value: the software itself.

It usually happens before a defining moment, such as an acquisition, a merger, a private equity buy-out, or a funding round. The buyer or investor almost always commissions it, because they’re the party taking on the risk.

Independence is the part that matters most. A review run by the seller’s own team, or by the agency that built the system, carries an obvious bias, so an independent assessor has no reason to soften the findings.

Technical vs Financial vs Legal Due Diligence

All three run in parallel on a serious deal, and they feed each other. A licensing problem found in the code becomes a legal question, and a big remediation bill becomes a financial one.

Type	Validates	Typically led by
Financial due diligence	Revenue, profitability, cash flow, forecasts	Accountants and financial analysts
Legal due diligence	Ownership, contracts, IP, compliance, litigation	Legal counsel and compliance
Technical due diligence	Code, architecture, security, scalability, process	CTOs, engineers, independent specialists

Why Does Technical Due Diligence Matter for Investors and CTOs?

It matters because the most expensive surprises in a software deal are technical, not commercial.

Hidden technical debt, security gaps and licensing problems can quietly turn a promising acquisition into a loss, and none of them appear in a profit and loss statement.

For an investor or acquirer, TDD does three concrete things. It validates that the technology can deliver the commercial plan, exposes liabilities you’d otherwise inherit, and hands you hard numbers to negotiate with.

A Worked Example

Take a buyer paying a strong multiple for a SaaS platform on the promise of rapid scaling. A review finds the system is a single monolith with no automated deployment and one contractor who understands the payments module.

The growth plan now needs £300,000 of re-engineering before it can even start. Far better to know that before completion than after.

The View From the Sell Side

For a CTO, the value cuts both ways. On the buy side, it’s a structured way to benchmark what you’re inheriting and plan the first 12 months.

On the sell side, it’s a readiness exercise that surfaces problems before a buyer’s team does, and protects your valuation.

What Does Technical Due Diligence Assess?

A thorough review covers six core areas: code quality, architecture, security, infrastructure and DevOps, performance and scalability, and third-party dependencies and licensing.

Together they show how the system was built, how it runs today, and what it will take to support it tomorrow. These are the six areas where risk, cost and long-term viability actually live.

Area assessed	What we look at	Why it affects the deal
Code quality & maintainability	Structure, consistency, test coverage, technical debt, duplication, complexity	Poor code slows every release and inflates the cost of change.
Architecture & system design	Scalability of the design, tight coupling, single points of failure, modularity	Fragile architecture limits growth and is costly to unpick later.
Security & data handling	Vulnerabilities, access controls, encryption, how data is stored and protected	Breaches mean fines, lost customers and reputational damage.
Infrastructure & DevOps	Hosting, CI/CD pipelines, automation, monitoring, backups, disaster recovery	Manual, fragile operations cause downtime and slow delivery.
Performance & scalability	Behaviour under load, bottlenecks, capacity for more users and transactions	If it can’t scale, the growth case you’re paying for evaporates.
Dependencies & licensing	Third-party libraries, supportability, open-source licence exposure	Restrictive licences can force rewrites or create legal risk.

The Tools and Standards Behind the Review

Good assessors don’t rely on opinion alone. Code is examined with static analysis (SAST) and software composition analysis (SCA) to flag vulnerabilities and licence conflicts, while dynamic testing (DAST) and penetration testing probe the running system.

Practices are measured against recognised benchmarks such as ISO/IEC 27001, SOC 2 and the OWASP Top 10. For UK organisations that also means the NCSC Cyber Assessment Framework and Cyber Essentials.

The Four Ps: A Complementary Lens

Some investors also frame the review around the four Ps: People, Product, Process and Performance. It’s a useful shorthand.

People covers key-person risk and team capability, and Product covers the software and its architecture. Process covers how code ships, and Performance covers reliability under real load.

How Does the Technical Due Diligence Process Work?

The process works in three movements: define the desired state, audit the current state, and measure the gap between them.

Everything from the kick-off call to the final report hangs off that simple frame. Most weak reviews skip the first step and audit the technology in a vacuum without asking what the business needs it to do.

A system that’s perfect for a niche product can be wholly unfit for an aggressive expansion plan. Context decides what counts as a risk.

1. Define the Desired State

Before anything is reviewed, we clarify the business and technical goals of the deal. Are you scaling user numbers, adding features, entering a regulated market, or folding the system into your own stack?

The answer shapes the entire assessment.

2. Audit the Current State

This is the core of the work: reviewing source code, architecture, security posture, infrastructure, dependencies and the engineering practices around them.

It runs on secure, read-only access to repositories, dashboards, CI/CD pipelines and documentation, all set up under an NDA.

3. Assess the Gap

Finally, we measure the distance between where the technology is and where it needs to be, then translate that into commercial language: what’s critical, what it will cost, and how long it will take.

The output isn’t a list of technical complaints. It’s a clear view of risk against your specific plan.

In practice this runs over two to six weeks, depending on the size of the codebase and how much access is available. A good review prioritises the handful of issues that could change the outcome rather than cataloguing every minor flaw.

How Are Technical Due Diligence Findings Scored?

Findings are scored by severity, likelihood and business impact, then sorted into a risk matrix so decision-makers can see at a glance what’s critical, what needs attention, and what’s minor.

A long list of issues is useless without that prioritisation.

From Raw Findings to Negotiation Points

A clear, unpatched vulnerability in a payment flow is high severity and high likelihood, so it goes red. A tidy-up of inconsistent naming is real but low impact, so it goes green.

The classification is what turns raw findings into negotiation points and a remediation plan.

Rating	What it means	What you do about it
Critical (red)	Likely to cause material harm or block the plan	Resolve before completion or reprice the deal
Significant (amber)	Real risk that needs a clear owner and timeline	Build into the remediation roadmap and budget
Minor (green)	Housekeeping with limited business impact	Address during normal development

Weighing up an acquisition or investment? Get independent technical due diligence from Software Development UK.

What Red Flags Should You Watch for During Technical Due Diligence?

The big red flags are heavy technical debt, security vulnerabilities, licensing contamination, key-person dependency, and a system that simply can’t scale.

Any one of them can move the price, and several together can end the deal. Experienced assessors tend to spot these patterns within the first week, because they point to deeper problems in how a company has been run.

Red flag	What it signals	Impact on the deal
Heavy technical debt	Years of shortcuts and ageing code	Higher maintenance cost, slower roadmap
Security vulnerabilities	Weak posture, unpatched dependencies	Breach risk, fines, lost customers
Licence conflicts	Unsafe use of open-source code	Legal exposure, forced rewrites
Key-person dependency	Knowledge held by one or two people	Fragile delivery, integration risk
No CI/CD or testing	Immature engineering process	Downtime, slow and risky releases
Can’t scale	Architecture won’t handle growth	The growth case behind the deal fails

Heavy Technical Debt

Technical debt is the accumulated cost of shortcuts and ageing code. McKinsey estimates it can amount to 20% to 40% of the value of an entire technology estate, and that 10% to 20% of the budget meant for new products gets diverted to servicing it.

Inherit a big enough pile and your roadmap stalls before it starts. This is exactly where a targeted code rescue or re-engineering plan earns its place in the remediation budget.

Security Vulnerabilities

Synopsys’ 2024 Open Source Security and Risk Analysis report, which audited more than 1,000 commercial codebases, found that 74% contained high-risk open-source vulnerabilities. The downside is steep.

IBM’s 2024 Cost of a Data Breach report put the global average breach at a record $4.88m, and under UK GDPR the ICO can fine up to £17.5m or 4% of global annual turnover, whichever is higher. Strong software security is what keeps those numbers hypothetical.

Licensing Contamination

The same Synopsys research found 53% of codebases contained open-source licence conflicts. Restrictive licences such as the GPL can, if used incorrectly, force a company to release proprietary code publicly or pay to re-engineer it.

That’s a legal and commercial risk hiding inside the code.

Key-Person Dependency and Weak Process

If one developer holds the system in their head, you’re buying a risk, not an asset. The same goes for missing CI/CD pipelines, no automated testing, and documentation that doesn’t exist.

These slow every future change and make integration painful.

What Does a Technical Due Diligence Review Uncover in Practice?

In practice, a review usually turns up a mix of one or two deal-shaping risks and a longer tail of smaller fixes.

The value is in separating the two, so you know what to act on before completion and what can wait.

A Typical Mid-Market Picture

Take a typical mid-market SaaS acquisition valued at around £6 million. On paper the product is growing and profitable, but here’s the kind of picture a review might paint underneath:

• Critical: 18% of the codebase relies on a GPL-licensed library, creating a real IP exposure.
• Critical: no automated tests on the billing service, so every release is a gamble.
• Significant: the platform runs on a single database with no failover, a clear scaling ceiling.
• Significant: one engineer owns the integrations, with little documentation to back them up.
• Minor: inconsistent coding standards and some outdated dependencies that are easy to update.

None of that necessarily kills the deal, but it reshapes it. The buyer can budget the remediation, adjust the offer, or make completion conditional on fixes.

That’s the difference between walking in with evidence and walking in blind.

How Long Does Technical Due Diligence Take, and What Does It Cost?

In the UK, technical due diligence typically costs between £20,000 and £150,000 and takes two to six weeks, scaling with the size and complexity of the system.

As a rough guide, it tends to land at around 1% of total deal value. We break the numbers down further in our guide to technical due diligence costs.

Deal size	Typical TDD cost	Duration	Example scope
Under £1 million	£10,000 to £25,000	1 to 3 weeks	Code quality, security posture, basic infrastructure review
£1m to £10 million	£25,000 to £60,000	3 to 5 weeks	Full architecture, DevOps and process analysis
Over £10 million	£60,000 to £150,000+	4 to 8 weeks	End-to-end audit: security, scalability, licensing, team maturity

Why the Cost Is Worth It

Cost is driven by scope, system complexity, regulatory requirements, and how detailed you want the deliverables to be. A single-repository web app reviewed for code quality is a different job from a multi-service platform that needs penetration testing.

Set against the cost of getting a deal wrong, that’s a small number. A review costing £40,000 that uncovers £300,000 of needed remediation has paid for itself several times over.

How Do You Prepare for a Technical Due Diligence Review?

Preparation comes down to organising your documentation, tidying access, and making it easy for the assessor to verify how the business runs.

Companies that prepare well shorten the review, reduce the fees, and signal a maturity that builds buyer confidence. Treat it as a collaborative audit rather than a defensive exercise.

A Practical Preparation Checklist

The smoother you make the reviewer’s job, the better the story your technology tells:

• Set up a secure data room with architecture diagrams, API references and deployment manuals.
• Give read-only access to source repositories, CI/CD pipelines, monitoring tools and logs.
• Maintain an up-to-date open-source inventory and licence report.
• Run an internal vulnerability scan and patch the obvious issues before review.
• Nominate a single technical point of contact to coordinate requests.
• Document known risks and technical debt rather than hoping they go unnoticed.
• Brief your engineers so they can answer questions confidently and honestly.

Questions a Buyer Should Be Asking

If you’re on the buy side, a few questions cut quickly to the heart of the risk:

• What happens to delivery if your most senior engineer leaves tomorrow?
• How long does a change take to go from commit to production, and is it automated?
• When was the last security test, and what did it find?
• What open-source licences are in use, and have they been reviewed?

What’s the Difference Between Buy-Side and Sell-Side Due Diligence?

Buy-side technical due diligence is commissioned by the acquirer or investor to validate what they’re buying, while sell-side (or vendor) due diligence is commissioned by the company being sold to find and fix problems before buyers arrive.

They share the same toolkit but serve opposite goals. Buy-side protects capital and uncovers risk before you commit, while sell-side removes surprises and keeps the transaction moving.

	Buy-side TDD	Sell-side (vendor) TDD
Commissioned by	Buyer or investor	The company preparing for sale
Main goal	Validate the target, uncover hidden risk	Fix issues early, present a clean story
Timing	During or just after the LOI stage	6 to 12 months before going to market
Payoff	Better price, fewer post-deal shocks	Higher valuation, faster, smoother deal

Support That Continues After Completion

We support both sides of this, including post-acquisition integration and system takeover once the deal closes. The sooner either party starts, the more options they have.

What Do You Get at the End of a Technical Due Diligence Review?

You get a clear, evidence-backed report that turns technical findings into commercial decisions: an executive summary, a detailed technical report, a risk classification, and a remediation roadmap with indicative cost and effort.

Our deliverables are built to serve both technical and non-technical stakeholders.

Executive Summary

A high-level overview for investors and board members, framing the key risks and strengths in terms of valuation, timelines and future investment.

Detailed Technical Report

The full analysis across code, architecture, infrastructure, security and dependencies. Each finding is supported by evidence so it’s transparent and traceable.

Risk Classification

Every issue categorised by severity, likelihood and impact, so you can see what’s critical, what needs attention, and what’s minor. This is what drives negotiation and planning.

Remediation Roadmap

A practical plan for addressing what was found, with sequencing and indicative effort, so you can stabilise or modernise the system with confidence after the deal.

“The goal of a good review isn’t to answer every question about a codebase. It’s to find the handful of issues that could materially change the business after completion, and to put a number against them.”

Technical Due Diligence Team, Software Development UK

If you’re approaching a transaction and want an independent read on the technology, SDUK’s UK-based team runs technical due diligence for investors, acquirers and founders from offices in London, Bristol and Manchester.

Frequently Asked Questions

Talk to SDUK’s technical due diligence team about your next deal. Call 020 3951 0555.