Software due diligence
For private equity and corporate transactions involving proprietary software, software due diligence is critical to assessing deal valuation and ensuring post-transaction value capture.
Assessing a company’s software product through competitive, functional, architectural, and development lenses offers buyers critical information and insight. This has benefits for both buyers examining a potential technology target and for sellers planning to exit their business.
How software due diligence benefits buyers and sellers
For buy-side transactions, technology company acquirers and custom core software purchasers alike should consider thoroughly assessing the potential value and risk associated with the software technology asset.
Buyers need to understand the competitive positioning of the product, the business functions it provides to users, how the technology achieves differentiation and functional support through its architecture and UI/UX. This is on top of confirming that the software is well-architected, scalable, supportable, well-documented, and secure.
Further, understanding how the product manager creates the product roadmap, prioritizes development efforts, spends time on maintenance/technical debt or customer-onboarding.
Moreover, understanding quantitative measures around code quality, technical debt, open-source and third-party license risks, and known security vulnerabilities will facilitate more informed decision making concerning potential remediation efforts and costs.
For sell-side transactions, ensuring that all of the above aspects are understood, well-managed, and properly communicated to potential buyers can help ensure proper valuation, decrease perceived risk against the roadmap and scalability, and increase the number of buyers who can move further into the bidding process by alleviating early concerns through proper communication.
Why choose RSM?
Comprehensive solutions
Our depth and breadth of capabilities and extensive advisor network allow us to execute an effective due diligence strategy to ensure a technology platform's ability to support growth.
Targeted holistic approach
We coordinate across all transaction workstreams—financial, corporate, IT, cybersecurity, HR, and operations—to provide a comprehensive risk assessment and mitigation strategy.
Identify risks or roadblocks
We focus on understanding potential technology limitations to growth in order to develop a plan to remediate and prepare for scale.
Experience
Our team of advisors includes former chief technology officers, architects and developers who have first-hand knowledge in all aspects of buy-side and sell-side software due diligence.
Our approach
Analyzing the comprehensiveness of the product road map, the capabilities of the application and the abilities of the product management team which includes:
- Reviewing the requirements generation processes, including customer input
- Evaluating the maturity and capacity of the product management team
- Assessing the feasibility of the team to execute the stated road map
- Reviewing risks that could hamper ability to drive progress and meet business demands
- Recommending key changes to the road map to address current or impending technical debt, potential scalability challenges, and the potential to leverage new technologies
Assessing the product architecture for scalability, stability and appropriateness which includes a review of:
- Product architecture design, technology stack and integration with internal or external systems
- Application uptime, responsiveness and throughput
- Product infrastructure including capacity, connectivity and scalability
- The approach to disaster recovery and ability to respond to issues and outages
- User interface and user experience (UI/UX) methodology, frameworks, prototyping and design criteria for product development
- Technical issues that could limit the ability to push new functionality and meet customer demands
Analyzing the software development life cycle to understand how application changes are developed, tested and deployed which includes a review of the following:
- Current development project management strategy and the testing, deployment and release management processes
- Implementation of secure software development framework best practices
- Open-source controls to ensure security and license compliance
- Processes and use of generative artificial intelligence (AI) throughout the development processes
- Deployment process including automation and management of customer impact
- Application performance logging, monitoring and alerting to understand how the product team detects and responds to issues
Assessing the capabilities and ability of the development team, including external developers, to manage and update the product which includes:
- Reviewing the development team structure and alignment with business needs
- Evaluating potential gaps in team skill sets and key roles
- Assessing development team metrics including time spent on new development maintenance and customer support
- Evaluating secure coding standards including training (e.g., OWASP Top 10)
Conducting code scans to provide quantitative views of code quality, technical debt, code security and open-source license risks which includes:
- Execution and analysis of software composition analysis and static application security testing tools and code quality scans
- Analysis of in-use technologies and frameworks to identify technical debt (e.g., outdated legacy versions) and known security vulnerabilities
- Analysis of open-source modules in use for potential license concerns
- Review of processes related to the secure software supply chain (e.g., executive order 14028) and the ability to create a software bill of materials
Reviewing the current spend and future needs to cost effectively manage growth and demand which includes:
- Analyzing development budget, tracking and cost management related to development personnel, product infrastructure and development tools
- Evaluating infrastructure spend and impacts to changes (e.g., cloud migration)
Reviewing the ability to develop and execute an AI and ML strategy to support the business and drive organizational and operational changes which includes:
- AI implementation, tooling, capabilities and planned AI and ML road map with alignment to organization growth plans and competitive advantage drivers
- Models and algorithms in production to confirm the maturity of ML operations
- Data sources, data drift, training and retraining scenarios
Additional related solutions
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