A Guide to Technology Due Diligence
The due diligence stage of the private equity asset lifecycle sets the tone for your investment strategy and protects you from taking bad risks. If “the money is made when you buy it,” then your ROI is dependent upon accurately assessing prospective investments.
In a digital era, technology is one of the key considerations during the due diligence stage because it indicates what level of long-term scalability a company has within the digital landscape.
Successful due diligence requires an understanding of both the financial services industry and the technology driving it forward. At Saxony Partners, our digital consultants are hired directly from the industries we serve to ensure that they can make the best possible business recommendations to our clients.
With that in mind, here is our guide to technology due diligence in 2021.
What is Technology Due Diligence?
Due diligence is defined as an audit or examination of an investment prior to acquisition, and typically the focus falls onto financial records. But technology due diligence goes a step further to address the way data, products, and processes are utilized within an organization.
Technology can impact everything from the way products are manufactured to the time limit on a competitive advantage to the accuracy and accessibility of critical company data. With that in mind, it makes good business sense to audit it as thoroughly as other aspects of a company.
The Technology Due Diligence Checklist
When it’s time to address technology due diligence, it helps to consider a few key questions about the investment you’re considering.
1. What are the technical debt and legacy implications of the company’s existing tech landscape?
2. Can you access the critical company data you need? Are you confident in its accuracy?
If company data is siloed into disparate Excel spreadsheets or trapped in archaic or ill-fitting software, you won’t have the real-time data access you need to make decisions about the market.
3. Where are the major needle-moving areas of value enhancement? Do you have a roadmap for success moving forward?
4. Is there proprietary technology? Is it patented, or can another company copy it?
5. Are the right people in the right seats? Are their skills being utilized to their full potential?
Particularly, is your CIO the right person the execute the strategy that will be developed during the technology due diligence stage?
Finding the answers to these questions illuminates the financial and organizational health of your investment.
Saxony Partners Private Equity Solutions
Even if performing technology due diligence is outside the scope of your expertise, you can still get the answers you need to make the right investment decisions.
Saxony Partners helps private equity clients gain operational improvements through digital initiatives and transformations. We believe in the old adage measure twice and cut once – and nowhere is this more applicable than in the due diligence stage. We help companies answer these imperative questions by rolling up our sleeves, assessing the environment, and discovering the answers in the data.
If your private equity organization needs assistance with technology due diligence, or any stage of the private equity lifecycle, contact us today.