Code Quality: The Cornerstone of India’s IT M&A Success

India’s Information Technology (IT) sector is a global powerhouse, driving mergers and acquisitions (M&A) that reshape the digital economy. For senior leaders and decision-makers, code quality has emerged as a critical factor in IT M&A deals. Global acquirers now demand rigorous technical due diligence to uncover hidden technical risks, legacy code, and architectural debt before finalising transactions. A superficial focus on financials no longer suffices code quality and software architecture directly influence valuation, integration success, and long-term growth. This article explores why code quality matters, recent trends in India’s IT M&A landscape, key challenges, and strategic best practices to maximise deal value.

Why Code Quality Drives IT M&A Success

In India’s booming IT M&A market, code quality underpins scalability, security, and integration potential. Acquirers face unique challenges in three common scenarios:

• Product Startups with Rapidly Scaled Codebases: Fast-growing startups often prioritise speed over structure, accumulating technical debt through patchwork codebases that lack modularity or documentation.
• Mid-Size Service Providers with Custom Platforms: Service firms build bespoke solutions, but inconsistent code quality across distributed teams can create integration hurdles.
• Legacy and Non-Scalable Architectures: Acquiring firms may inherit poorly documented, monolithic systems, exposing technical risks that inflate post-acquisition costs.

Robust technical due diligence, centered on code quality and software architecture, helps acquirers identify these risks early, ensuring informed decisions and smoother integrations.

1. Recent Trends in India’s IT M&A Landscape (2025)

India’s IT M&A market in 2025 reflects global and local trends elevating code quality as a strategic priority:

• Niche SaaS, AI, and DevOps Platforms: Deals now increasingly target specialised Software-as-a-Service (SaaS) firms, AI-driven tools, and DevOps platforms. In these cases, code quality directly affects product reliability and ease of integration. Scalable, well-documented codebases attract higher valuations.
• AI-Driven Code Quality Tools: Advanced AI tools for code analysis are gaining traction. They provide deeper insights into technical risks during due diligence.
• Third-Party Technical Due Diligence: Specialist firms now conduct in-depth code quality audits. They use automated scans and architectural reviews to detect hidden issues.
• SEBI’s Updated Listing Norms: The Securities and Exchange Board of India (SEBI) has tightened norms for IP-driven companies. This move pushes firms to improve software architecture and code quality to build investor trust.
• Indian Buyers Acquiring Overseas Startups: Indian IT giants are buying foreign startups more often. This trend demands reverse due diligence to check legacy platforms for code quality and cross-border compliance.

These trends highlight that code quality is a cornerstone of successful IT M&A deals.

2. Key Challenges in Evaluating Code Quality

Assessing code quality during IT M&A due diligence is complex, with technical risks often hidden:

• Inconsistent Coding Practices: Distributed teams across geographies follow disparate standards, leading to fragmented codebases that complicate integration.
• Limited Documentation and Knowledge Silos: Poor documentation and reliance on key individuals hinder understanding of system logic.
• Legacy Dependencies: Outdated modules or libraries may harbor vulnerabilities, increasing technical risks.
• Security Flaws: Unpatched libraries or weak coding practices can hide exploitable vulnerabilities, threatening post-acquisition stability.
• Scalability Constraints: Monolithic architectures or tightly coupled systems may not support future growth, undermining the product roadmap.
• Roadmap Misalignment: Declared product features may not align with the actual software architecture, creating gaps that delay delivery.

These challenges demand a comprehensive approach to technical due diligence, prioritising code quality to mitigate risks.

3. Strategic Implications for IT M&A

To navigate these complexities, senior leaders must embed code quality and software architecture assessments into every stage of IT M&A: due diligence, valuation, and integration.

• Due Diligence Best Practices

1. Deploy Objective Code Quality Assessments: Use automated code scans, static analysis, and peer reviews to evaluate code quality metrics like maintainability and test coverage.
2. Benchmark Software Architecture: Assess modularity, scalability, and API readiness to ensure compatibility with the acquirer’s ecosystem.
3. Evaluate DevSecOps Maturity: Check for automated testing, CI/CD pipelines, and security practices to confirm operational resilience.
4. Verify IP and Licensing Compliance: Confirm proprietary code ownership and audit open-source licenses to avoid legal risks.
5. Involve Cross-Functional Teams: Collaborate with legal and finance experts to align technical findings with deal terms, ensuring a holistic evaluation.

• Valuation and Deal Structuring

1. Account for Technical Debt: Adjust the purchase price to reflect costs of addressing poor code quality or architectural debt.
2. Use Earn-Outs and Holdbacks: Tie deal value to successful code refactoring or re-architecture milestones, incentivising sellers to address issues.
3. Budget for Tech Upgrades: Allocate funds for immediate post-acquisition fixes, such as security patches or re-documentation, to mitigate technical risks.

• Post-Merger Integration

1. Prioritise Quick Wins: Address critical bugs, apply security patches, and improve documentation to stabilise the platform.
2. Establish a Center of Excellence: Create a dedicated team to modernise legacy code, adopting best practices for code quality and software architecture.
3. Align Product Roadmap: Reconcile the product roadmap with new architecture standards to ensure scalability and feature delivery.

Illustrative Example

An Indian IT major acquired a niche HR SaaS firm with strong revenue but poor code quality. Technical due diligence revealed a monolithic design, patchwork modules, and security vulnerabilities. These findings prompted a renegotiated purchase price and a phased earn-out tied to delivering a microservices-based platform. By addressing code quality early, the acquirer mitigated risks, reduced integration costs, and ensured long-term scalability.

Conclusion

In India’s fast-evolving IT M&A landscape, code quality and software architecture are critical to maximising deal value and minimising risks. Rigorous technical due diligence uncovers hidden technical risks, enabling informed decisions. By prioritising code quality in due diligence, valuation, and integration, acquirers can protect against liabilities, accelerate integration, and unlock the full potential of IT M&A deals. Partnering with experts like LawCrust can further streamline this process, ensuring robust assessments and strategic success.

About LawCrust

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