Technology Company Due Diligence Checklist for Buyers
By the time a buyer signs a letter of intent on an IT services or software company, they have usually reviewed summary financials, heard about the client base and met the owner. Technology company due diligence is where those impressions are tested against records: client contracts, billing data, code repositories, vendor agreements, staff arrangements and security history. It is where a buyer learns whether reported earnings hold up and whether hidden obligations come with the business.
This checklist is general information for buyers of existing, operating technology companies. It is not exhaustive, and every transaction is different. Contract, intellectual property, privacy, cybersecurity, export and employment questions should be reviewed with qualified attorneys, accountants and security professionals. Nothing here is legal, tax or financial advice.
Financial Records
- Several years of business tax returns and financial statements
- Interim financial statements and a reconciliation to tax returns
- Revenue by client, service line and month
- Gross profit on managed services, projects and product resale
- Receivables aging and collection history
- Support for proposed owner adjustments
- A schedule of existing debt, leases and other obligations
Customer Contracts and Revenue Quality
- Copies of client agreements, statements of work and service level terms
- Renewal, termination, pricing and assignment or change-of-control provisions
- Client tenure and history of cancellations
- Billing records reconciled to bank deposits
- Any service credits, disputes or unresolved complaints
See our article on managed services contracts and our guide to IT company customer concentration.
Code, Tools and Intellectual Property
- An inventory of software, scripts, tools and documentation the company built
- Employee and contractor agreements, including intellectual property assignments
- Any open-source components and the licenses that apply to them
- Domain names, trademarks and where code and documentation are stored
IP questions should go to qualified IP counsel. See our article on software code ownership.
Security, Data and Liability
- Written security policies and how they are applied in practice
- History of security incidents and how they were handled
- What client data the company holds or can access
- Contractual security commitments made to clients
- Insurance coverage, including any cyber or professional liability policies
Our article on cybersecurity due diligence covers this area in more detail.
Vendors and Partner Relationships
- Distributor, reseller and software publisher agreements
- Partner program status and what is required to keep it
- Licensing that is held in the company’s name versus the owner’s name
- Consent or notice requirements on a change of ownership
Vendor relationships, pricing and partner status should not be assumed to transfer.
People
- An organization chart with roles, compensation and tenure
- Which staff hold key client relationships and administrative credentials
- Employment agreements, non-solicitation terms and contractor arrangements
- Certifications held by individuals rather than by the company
See our guide to technical staff retention. Worker classification and restrictive covenant questions should be reviewed with employment counsel.
Legal and Regulatory
- Entity documents and ownership records
- Pending or threatened claims
- Any regulated clients whose contracts impose specific data obligations
- Office lease terms and assignment provisions
US Professional Funding helps buyers finance the acquisition of existing, operating technology companies once diligence supports the transaction. Learn more about our technology acquisition financing.
