How to Use Technical Debt Data in the M&A Process
As a starting point, please read Implication of Technical Debt Uncertainty for Software Licensing Negotiations. Everything stated there holds for negotiating M&A deals. In particular:
- You (as the buyer) should insist on conducting a Technical Debt Assessment as part of the due diligence process.
- You should be able to deduct the monetized technical debt figure from the price of the acquisition.
- You should be able to quantify the execution risk (as far as software quality is concerned).
An important corollary holds with respect to acquiring a company who is in the business of doing maintenance on an open source project, helping customers deploy it and training them in its use. You can totally eliminate uncertainty about the quality of the open source project without needing to negotiate permission to conduct technical debt assessment. Actually, you will be advised to conduct the assessment of the software prior to approaching the target company. By so doing, you start negotiations from a position of strength, quite possibly having at your disposal (technical debt) data that the company you consider acquiring does not possess.
Action item: Supplement the traditional due diligence process with a technical debt assessment. Use the monetized technical debt figure to assess execution risk and drive the acquisition price down.
Negotiating a major M&A deal? Let me know if you would like assistance in conducting a technical debt assessment and bringing up technical debt issues with the target company. I will help you with negotiating the acquisition price down. Click Services for details and contact information.