As software often plays a significant or even dominant role in the financial valuation of an M&A transaction, it is highly recommended for investors to analyse the technical quality of the software and the efficiency of the development processes by means of a professional software due diligence.
For this purpose, an investor should carefully select a consultant with the necessary expertise, as the software technology, the scope and the assumptions in the investment thesis determine which questions and methods should be used to carry out the software due diligence.
The choice of investigation methods in a software due diligence depends, for example, on whether
- the company is a start-up or a corporate group
- the software was developed in-house or with/through partners
- the development team is small or large and works in a centralized or decentralized way
- the scope of the software is small, medium or large
- the software uses AI algorithms
- the user base or data volume will increase significantly after the acquisition
- if an analysis scan with a software tool from the code base is permitted
- if indications of R&D priorities after Day 1 are expected
- who the main audience of the final report is.
The following multi-part blog discusses questions that arise from the above-mentioned expectations and realities for conducting a software due diligence. The expectations from the investor's perspective must also always be considered:
Part 1: Influence of company size and organisation on the execution and focus of a software due diligence.
Part 2: Safeguarding software IP in a software due diligence: Effective strategies for sell- and buy-side
Part 3: Software Due Diligence in transition: Between legacy systems and agile SaaS solutions
Part 4: The fields of investigation of a "classical" AI Software Due Diligence
Part 5: Latest trends about AI Software Due Diligence
Part 6: What to do with the results of a (AI ) SW DD after a successful acquisition?
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[0] Photo by Tima Miroshnichenko