Understanding Technology and Cybersecurity Due Diligence

Katie Tibbetts
May 26, 2025
3 min read

Updated: Aug 18, 2025

What Is Technology Due Diligence?

Technology due diligence is the process of assessing a target company's digital assets, infrastructure, and security posture during an M&A transaction. The goal is to uncover risks, validate proprietary technology, and evaluate scalability and integration readiness.

Key Components of Tech Due Diligence

Here’s a high-level checklist of what buyers should review:

IT Infrastructure: On-premise vs. cloud setup, network architecture, vendor relationships.
Software Architecture: Code quality, frameworks used, scalability, performance bottlenecks.
Product Roadmap: Alignment with business goals, delivery history, technical debt.
Technology Stack: Third-party dependencies, outdated tools, licensing issues.
Team & Capabilities: Key personnel, development practices, documentation quality.
Disaster Recovery: Business continuity plans, backup processes.

Pro tip: Involve a CTO-level advisor early to spot red flags that a general due diligence team may miss.

Cybersecurity Audits: What to Look For

A company’s cybersecurity vulnerabilities can quickly become a buyer’s problem. Inadequate security can lead to data breaches, regulatory fines, and reputational damage.

Key areas to assess in a cybersecurity audit include:

Security Policies & Governance: Are formal security protocols in place?
Access Controls: Are user roles and privileges tightly managed?
Incident History: Any past data breaches, ransomware events, or downtime?
Penetration Testing & Risk Assessments: When was the last test conducted?
Third-Party Risk: Vendor access and supply chain security.
Security Certifications: ISO 27001, SOC 2, etc.

IP Validation: Who Really Owns the Code?

One major risk in tech M&A is discovering post-deal that you don’t own the code. IP validation confirms the following:

All developers (in-house or outsourced) have assigned rights to the company.
Open-source components are used in compliance with licenses.
Patents, trademarks, and copyrights are registered and properly maintained.

Watch out for: Code created by freelancers or contractors without signed IP transfer agreements.

Evaluating System Scalability

If you’re buying a company to scale it, the underlying tech must be ready to grow with you. Consider these questions:

Can the current system handle increased user loads?
Is the infrastructure modular or monolithic?
How easy is it to integrate with other platforms or tools?
Is the tech team staffed and skilled enough to support future demands?

Data Privacy Compliance: GDPR, CCPA & Beyond

Non-compliance with data privacy laws can lead to significant fines and legal headaches post-acquisition. Review the company’s compliance posture on:

GDPR (EU) and CCPA (California) standards.
User consent and data storage policies.
Data subject access request procedures.
Privacy notices and terms of use.

If the company operates globally, ensure it's prepared for multi-jurisdictional compliance.

Document Requests for Tech Due Diligence

Ensure your data room request includes:

Network architecture diagrams.
Source code repositories and access logs.
Security policies and incident reports.
DevOps documentation.
Product roadmap and release history.
Software license summaries.
IP registrations and legal documents.

The Importance of Continuous Assessment

Due diligence isn't just a one-time event. It’s crucial for long-term success. Continuous assessment helps in adapting to changes rapidly. This includes keeping technology infrastructure updated and monitoring cybersecurity threats.

Final Thoughts: Tech Due Diligence as a Deal Maker (or Breaker)

Technology and cybersecurity risks are deal-critical. Skipping through thorough tech due diligence can result in costly surprises, integration nightmares, or lost value.

On the flip side, identifying scalable, secure, and well-managed tech infrastructure can justify a premium valuation and even create new growth opportunities post-close.