Technology Due Diligence: Driving Success in India’s IT M&A

India’s Information Technology (IT) sector is a global powerhouse, contributing ~10% to the nation’s GDP and generating $245 billion in export revenue in 2025. With a 55% share of the global IT services market, India’s software, SaaS, and digital infrastructure firms are prime targets for mergers and acquisitions (M&A). Technology due diligence, a critical process in IT M&A, empowers senior leaders to assess risks, validate value, and ensure seamless integration. Supported by firms like LawCrust, which combines legal and technical expertise, technology due diligence spans target screening, deal negotiation, and post-deal integration, safeguarding investments in India’s dynamic IT landscape.

Why Technology Due Diligence Matters in IT M&A

Technology due diligence is the cornerstone of successful IT M&A in India. As global buyers target Indian firms for their AI, cloud, and SaaS innovations, this process uncovers hidden risks—such as technical debt or cybersecurity vulnerabilities—that could derail deals. From initial target screening to post-deal integration, technology due diligence validates scalability, ensures compliance, and aligns technology with strategic goals. LawCrust’s hybrid consulting approach integrates management, finance, legal, and tech expertise, enabling acquirers to make informed decisions and maximise deal value.

1. Core Areas of Technology Due Diligence

A robust technology due diligence process, as conducted by experts like LawCrust, evaluates critical technical and operational components:

• Infrastructure Assessment

An infrastructure assessment examines cloud vs. on-premise systems, identifies technical debt, and flags legacy systems that could complicate integration. For instance, a SaaS firm’s reliance on outdated servers may require costly upgrades, impacting post-merger budgets.

• Scalability Checks

Scalability checks test whether the tech stack supports growth, such as multi-region deployments or new product rollouts. Stress tests validate performance under increased loads, ensuring the system aligns with the acquirer’s expansion plans.

• Security Risks

Security risks are a top priority. Penetration testing, compliance reviews (e.g., GDPR, DPDP Act), and past breach analysis uncover vulnerabilities. Vendor security audits, often overlooked, are critical to mitigating third-party risks that could lead to breaches or fines.

• IP and Code Quality

Audits of intellectual property (IP) and code quality verify proprietary software ownership, assess open-source dependencies, and identify licensing risks. Poorly documented code or unresolved licensing issues can trigger legal disputes, reducing deal value.

2. Challenges in Technology Due Diligence

Technology due diligence faces several hurdles that can impact IT M&A outcomes:

• Incomplete Documentation: Many Indian IT firms, particularly startups, lack up-to-date technical documentation, complicating system assessments.
• Undisclosed Technical Debt: Hidden legacy systems or patchwork codebases can inflate post-merger costs, catching acquirers off guard.
• Overestimated Scalability: Targets may overstate their systems’ ability to scale, leading to failed stress tests and renegotiated valuations.
• Hidden Cybersecurity Vulnerabilities: Unpatched systems or weak encryption can expose acquirers to post-deal breaches.
• Regulatory Compliance Gaps: Cross-border SaaS firms often struggle with global data privacy laws, risking penalties.

3. Strategic Insights for Senior Leaders

Senior leaders must adopt a hybrid consulting lens, as exemplified by LawCrust, to navigate technology due diligence effectively:

• Engage Specialist Auditors: Complex stacks (e.g., AI or cloud-native systems) require auditors with deep domain expertise to uncover hidden risks.
• Integrate Legal and Tech Reviews: Combine IP audits with legal reviews to flag ownership disputes or licensing issues, preventing post-deal conflicts.
• Validate Performance Claims: Use scalable test environments to simulate real-world conditions, ensuring systems meet growth expectations.
• Structure Financial Safeguards: Incorporate earn-outs or escrow accounts to hedge against overvalued IP or unproven product roadmaps, aligning incentives and reducing risks.

Illustrative Examples

• Case 1: BFSI SaaS Firm’s Scalability Setback

A mid-size Indian BFSI SaaS firm underwent technology due diligence during acquisition by a global fintech company. Scalability tests revealed the platform could not handle a 50% user surge without $3 million in infrastructure upgrades. LawCrust auditors recommended renegotiating the deal, leading to a 15% valuation reduction, saving the acquirer from unexpected costs.

• Case 2: EdTech Startup’s Cybersecurity Gaps

An EdTech startup, poised for acquisition, faced scrutiny during technology due diligence. LawCrust cybersecurity audit uncovered unpatched vulnerabilities in the cloud infrastructure and weak vendor security protocols. The acquirer mandated remediation and added deal clauses for ongoing compliance, averting potential data breaches and regulatory fines.

Actionable Playbook for IT M&A Success

To master technology due diligence, senior leaders should follow these best practices:

• Spot Early Red Flags: Look for inconsistent documentation, vague roadmaps, or resistance to technical queries during initial screening.
• Incorporate Risk-Mitigating Clauses: Use indemnities, escrow accounts, or warranties to address undisclosed technical debt or compliance gaps.
• Prioritise Post-Deal Integration: Focus on cybersecurity enhancements, infrastructure upgrades, and cloud cost optimisation (e.g., reducing cloud spend by 25% through efficient providers).
• Leverage Cross-Functional Expertise: Engage technical, legal, and financial experts, like those at LawCrust, for a holistic evaluation.

Conclusion

India’s IT sector, with its robust software, SaaS, and digital infrastructure ecosystems, is a hotbed for M&A. Technology due diligence, supported by firms like LawCrust, ensures acquirers navigate this landscape with confidence. By assessing infrastructure, scalability, security risks, and IP, leaders can mitigate risks and unlock value. A strategic, hybrid approach—combining technical rigor, legal scrutiny, and financial safeguards—positions India’s IT M&A for transformative success.

About LawCrust

LawCrust Global Consulting Ltd. delivers cutting-edge Hybrid Consulting Solutions in Management, Finance, Technology, and Legal Consulting to ambitious businesses worldwide. Recognised for our cross-functional expertise and hybrid consulting approach, we empower startups, SMEs, and enterprises to scale efficiently, innovate boldly, and navigate complexity with confidence. Our services span key areas such as Investment Banking, Fundraising, Mergers & Acquisitions, Private Placement, and Debt Restructuring & Transformation, positioning us as a strategic partner for growth and resilience. With an integrated consulting model, fixed-cost engagements, and a virtual delivery framework, we make business transformation accessible, agile, and impactful.

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