Technology driven acquisitions can deliver rapid growth, valuable intellectual property and access to scalable platforms. However, they also carry a unique set of risks that are often not visible through standard legal or financial due diligence alone. If you are acquiring a technology business, the quality of its code, the strength of its intellectual property rights and the resilience of its systems will all have a direct impact on value.
Technology due diligence is no longer optional. It is a critical part of understanding what you are acquiring and whether the business can deliver on its promises. At Herrington Carmichael, we support you in identifying technical, legal and operational risks early, helping you protect your investment and approach your transaction with clarity.
Why technology due diligence goes beyond traditional legal review
Traditional legal due diligence focuses on contracts, corporate structure and compliance. While this remains essential, it does not always provide a complete picture in a technology transaction. The real value often sits in intangible assets such as software, data and proprietary processes.
Without a dedicated technology review, key risks can remain hidden. For example, a product may appear commercially successful, but its underlying code may be outdated or poorly maintained. Similarly, a business may rely heavily on third party technology without fully compliant licensing arrangements.
A more integrated approach is required. Technology due diligence brings together legal, technical and commercial insight, allowing you to assess not just what the business owns, but how it operates in practice. We work alongside technical specialists where needed to ensure that your legal strategy reflects the realities of the technology you are acquiring.
Reviewing code, intellectual property ownership and licensing
At the centre of most technology businesses is their codebase. Understanding how that code has been developed, maintained and documented is essential. Poorly structured or undocumented code can increase future development costs and slow down growth. In some cases, it can create security vulnerabilities or limit scalability.
Intellectual property ownership is equally important. You need to be confident that the target business owns the rights it claims, particularly where development work has been carried out by contractors, employees or third parties. Gaps in ownership can significantly reduce the value of the business and may be difficult to rectify after completion.
Licensing arrangements also require close attention. Many technology businesses rely on third party software, including open source components. While this is common, improper use of licensed software can create compliance risks, including restrictions on how products are distributed or commercialised.
We help you verify ownership of key intellectual property, assess the robustness of development practices and identify licensing risks. Where issues are identified, we work with you to address them through contractual protections or by restructuring elements of the transaction.
Cybersecurity and data protection risks
Cybersecurity and data protection are now central considerations in any technology acquisition. Businesses that handle personal data or operate digital platforms must comply with strict regulatory requirements. Failures in this area can result in significant financial penalties and reputational damage.
From a due diligence perspective, you need to understand how data is collected, stored and protected. This includes reviewing policies, security measures and incident response procedures. A history of data breaches or weak internal controls can indicate a higher risk profile.
Cybersecurity vulnerabilities may not always be visible at a surface level. Legacy systems, outdated software or inadequate monitoring can expose the business to ongoing threats. These risks can affect both operational continuity and customer trust.
SaaS and platform based business models
Many modern technology transactions involve software as a service or platform based businesses. These models present specific considerations that differ from traditional software licensing arrangements.
Revenue models are often based on subscriptions, which means future income depends on customer retention and contract terms. Understanding the structure of customer agreements, including termination rights and renewal provisions, is essential for assessing long term value.
Platform businesses may also depend on integrations with third party services or ecosystems. This creates additional layers of dependency, and any disruption to those relationships can affect performance. You will need to assess how stable these integrations are and whether appropriate agreements are in place.
Operational scalability is another key factor. A business that appears successful at its current size may require significant investment to support further growth. This includes infrastructure, support systems and ongoing development. We help you evaluate these commercial and legal dynamics, ensuring that you understand how the business generates revenue and what risks may affect its future performance.
Protecting value through transaction structuring and documentation
The findings from technology due diligence must be reflected in how your transaction is structured. If risks are identified, they should influence both valuation and contractual protections.
Warranties can provide assurance on matters such as intellectual property ownership, data protection compliance and system integrity. However, they must be carefully drafted to ensure that they are meaningful and enforceable. Disclosures from the seller must also be reviewed closely, as they will limit the scope of warranty protection.
In some cases, indemnities may be required to address specific risks, such as known data breaches or intellectual property disputes. Consideration structures, including deferred payments or earn outs, can also be used to manage uncertainty and align incentives.
Our role is to ensure that your legal documentation reflects the risks identified during due diligence and provides you with appropriate protection. We focus on clarity and certainty, reducing the likelihood of disputes after completion.
Protecting value after completion
The success of a technology acquisition depends on what happens after the deal completes. Integration is often where technical and operational challenges become most apparent. Without a clear plan, even well structured transactions can fail to deliver expected value.
You may need to integrate systems, align development processes or address issues identified during due diligence. This requires coordination between legal, technical and commercial teams. Data protection compliance must be maintained throughout, particularly where systems are being combined.
There is also an opportunity to strengthen the business. Addressing weaknesses in code, improving cybersecurity measures and refining licensing arrangements can enhance value over time. We support you beyond completion by helping you prioritise and manage these issues. By taking a proactive approach, you can protect your investment and build a stronger platform for growth.
A smarter approach to tech M&A
Technology due diligence is about more than identifying problems. It is about understanding how a business operates and ensuring that your acquisition delivers the value you expect.
By combining legal expertise with technical insight, you can approach your transaction with greater confidence. At Herrington Carmichael, we provide practical, commercially focused advice that helps you navigate complexity and make informed decisions at every stage.
If you are considering acquiring a technology business, early and thorough due diligence is essential. Identifying risks at the outset gives you greater control over the transaction and helps you avoid costly surprises later.
Our team is here to support you throughout the process, from initial assessment through to completion and integration. Contact us to discuss your plans and explore how we can help you secure a successful technology acquisition.
