What is IT / Tech Due Diligence, why you should conduct it? and the ITDD / TechDD Checklist and Processes

IT Due Diligence is the process of thoroughly evaluating the information technology (IT) infrastructure, systems, processes, and risks of a company—typically as part of a merger, acquisition, investment, or partnership. It involves assessing the technology landscape to uncover potential risks, costs, integration challenges, and opportunities for value creation.

🔍 Why You Should Conduct IT Due Diligence:

1. Risk Identification

Detect outdated, unsupported, or vulnerable systems.
Uncover cybersecurity risks or compliance issues (e.g., GDPR, HIPAA).
Evaluate disaster recovery and business continuity plans.

2. Cost and Investment Planning

Estimate future IT investments needed (e.g., system upgrades, staffing).
Understand current IT operating costs and liabilities (e.g., licenses, contracts).

3. Operational Compatibility

Assess how well IT systems can integrate with those of the acquiring company.
Identify gaps or overlaps in software, infrastructure, and processes.

4. Scalability and Performance

Determine whether current systems can support business growth or international expansion.
Evaluate software architecture, development practices, and scalability.

5. Intellectual Property & Assets

Verify ownership of source code, software licenses, and proprietary tools.
Ensure key digital assets and contracts are transferable and valid.

6. Strategic Alignment

Ensure IT strategy supports business goals and growth plans.
Understand the technology team’s strengths and any reliance on key personnel.

✅ When It’s Most Critical:

Mergers & Acquisitions (M&A)
Venture Capital or Private Equity Investments
Joint Ventures or Strategic Partnerships
Internal Audits for Digital Transformation Planning

🧾 IT Due Diligence Checklist Template

A typical Implement technical DD process spans three to six weeks and includes an evaluation of the target’s tech and product strategy, product platform, tech organization and people, development process, governance and cybersecurity and infrastructure.

1. IT Strategy & Governance

IT organizational structure and leadership roles
IT strategy documents and roadmaps
IT governance and decision-making processes
Technology vision alignment with business goals

2. IT Infrastructure

Hardware inventory (servers, networks, storage, etc.)
Data centers and hosting (on-premises, cloud, hybrid)
Network architecture diagrams and documentation
Capacity and scalability assessment
Backup and disaster recovery plans

3. Software & Applications

Inventory of all applications and platforms in use
Custom-developed vs. off-the-shelf software
Software architecture overview
Source code ownership and documentation
APIs and third-party integration points
License compliance (SaaS, open-source, proprietary)

4. Cybersecurity & Risk Management

Cybersecurity policies and procedures
Security audit results or penetration testing reports
Data protection and encryption practices
Identity and access management (IAM)
Incident response and breach history
Regulatory compliance (e.g., GDPR, HIPAA)

5. IT Operations & Support

IT service management (ITSM) practices
Issue tracking and helpdesk tools
Change management processes
Performance monitoring systems
SLAs and uptime history

6. Data Management

Data architecture and flow diagrams
Data quality and governance practices
Data ownership and stewardship
Data privacy and retention policies

7. IT Financials

IT budget (past 3 years and forecast)
CapEx vs. OpEx breakdown
Major IT contracts and vendor agreements
Pending IT expenditures or commitments

8. IT Team & Resources

Org chart of the IT team
Key personnel and retention risks
Use of contractors or outsourced IT services
Skillsets and certifications

9. Legal & IP

Software license agreements and audits
Ownership and protection of source code and IP
Pending or historical IT-related litigation
Third-party software dependencies

10. Future Roadmap & Risks

Planned system upgrades or migrations
Known technical debt
Strategic IT initiatives in progress
Key risks and mitigation plans

📋 Typical Technical Due Diligence Process

The Technical Due Diligence (Tech DD) process is a structured assessment conducted—typically by investors, acquirers, or strategic partners—to evaluate the technical capabilities, risks, and scalability of a company’s technology, infrastructure, and team before a major decision (e.g., investment, acquisition, partnership).

The IT due diligence process phases may vary depending on the stakeholders involved. For instance, in some cases, we were engaged as CTO on the client side (the company has a product, and we are its developers). In other cases, we participated as independent technical experts for code checks (identifying strong and weak points of a product) before passing due diligence.

Kick-off & NDA
- Parties agree on scope and sign a non-disclosure agreement.
- Initial conversations define focus areas (e.g., product maturity, infrastructure, security).
Documentation Review
- Architecture diagrams
- System design documents
- DevOps and CI/CD pipelines
- API documentation and test coverage reports
- Technology stack and third-party dependencies
- Report or Polices review: Disaster Recovery Plan, Cybersecurity report, Vulnerability Report, etc.
Codebase & Architecture Analysis
- Code quality (readability, modularity, duplication, adherence to best practices)
- Use of design patterns and frameworks
- Scalability, performance, and fault tolerance of architecture
Infrastructure & DevOps Review
- Hosting/cloud setup (AWS, Azure, GCP)
- Deployment pipelines
- Monitoring and alerting systems
- Disaster recovery and backup plans
Security & Compliance Check
- Data encryption, access control, and secure coding practices
- Penetration testing, audit logs, and vulnerability scans
- Regulatory compliance (e.g., GDPR, HIPAA)
Team & Process Evaluation
- Engineering team structure and skill sets
- Vendor services and contracts
- Agile/dev methodology, sprint planning, and QA processes
- Bus factor (knowledge concentration risk)
Product Roadmap & Scalability
- Future product plans and architectural flexibility
- Ability to scale to new markets, users, or workloads
IP & Licensing
- Open source software use and compliance
- Ownership of code, patents, and third-party services
Final Report & Recommendations
- Summarized findings
- Technical risk assessment
- Recommended actions and red flags

⚠️ Common Pitfalls in IT Due Diligence

Even experienced deal teams can fall into traps when assessing IT environments. Below are some common pitfalls that can undermine the effectiveness of IT due diligence:

1. Overlooking Legacy Systems

Failing to identify outdated systems that are costly to maintain or incompatible with modern platforms can result in major post-deal technical debt.

2. Incomplete Security Assessment

Surface-level reviews of cybersecurity may miss deep vulnerabilities, such as unpatched systems, poor access control, or outdated encryption.

3. Ignoring the Human Element

The loss of key IT personnel post-acquisition can cripple operations. Assessing employee retention risks and documenting institutional knowledge is essential.