As technology plays a bigger and bigger part in in a company’s operations, product technical due diligence (Product TechDD) is becoming an indispensable part of the acquisition process for investors.

Advancements in areas such as artificial intelligence, cloud computing and digitalization of processes in recent years are making it imperative for investors to perform a thorough and comprehensive evaluation of a company’s technology and product portfolio as part of overall due diligence.

Along with commercial and operational due diligence, the success of an investment today hinges on the robustness and potential of the target company's tech assets, as well as on the future orientation of the product portfolio and its protection through intellectual property (IP) rights. Making an investment without a thorough technological evaluation, particularly in tech-reliant or innovation-heavy businesses, could result in wasted resources (both time and money), misalignment between investor goals and tech strategy and either under- or overestimating future growth potential of the target. 

As investors look to make informed decisions, a comprehensive evaluation of a company’s tech and product portfolio will not only provide insights into the current state of the assets but will also assess their scalability prospects and alignment with business goals.

Key Areas of Assessment

Investors must assess a number of technological factors when acquiring a company or a business unit. Based on our extensive experience supporting corporates and private equity funds in conducting Product TechDD, we highlight the following as key areas that it can shed light on:

Tech and product portfolio: Product TechDD offers a thorough examination of the target company's technology and product portfolio, with the aim of understanding the competitiveness as well as risks and opportunities linked to research and development, trademarks and patents. It can also help in analyzing the assets in light of technology trends that may disrupt the market.

Talent and expertise: It also examines the skills and expertise of the technical team, their development practices and the overall organizational culture towards innovation and agility. As businesses increasingly look to AI-enabled tools to perform tasks in various functions, a strong scrutiny of the human element is crucial to ensure the best oversight. A skilled and adaptable team can be a significant asset in driving the company towards its strategic objectives. Conversely, a team lacking in relevant, up-to-date skills or working within a rigid framework can hinder growth and adaptation in an ever-evolving technological landscape.

Alignment with goals: The strategic alignment of technology with business goals is another critical area to address, especially if combined with commercial due diligence. Investors need to ensure that the target company's technological roadmap is synchronized with its business strategy, market demands and pricing assumptions in the new business plan. This involves assessing the scalability of the technology, its compatibility with emerging trends and its ability to provide a competitive edge, while being protected by long-term IP. A mismatch here could mean a company will struggle to achieve its business objectives despite having advanced technology. For the acquirer, this in turn means a poor return on investment.

IP and legal risks: Understanding the IP landscape is a vital aspect of Product TechDD. This includes reviewing patents, trademarks, and proprietary technologies to ensure there are no infringements or disputes that could pose legal risks, as well as ensuring there is no loss of IP due to expired patents. Securing a clear IP position not only protects the investment but also enhances the company’s value proposition. It assures investors that the technology they are acquiring is unique, defensible and capable of providing sustainable competitive advantages.

Process technology: It is also crucial to evaluate the competitiveness of process technology and industrial assets, which involves analysing the current tech landscape, identifying trends and examining investments by key competitors. This helps to formulate a view on the long-term viability of the target company’s production assets, offering investors valuable insights into the associated risks and opportunities.

How A&M Can Help

At Alvarez and Marsal, we use a comprehensive approach during Product TechDD, which integrates deep technical expertise with robust business acumen. A&M brings together experts from various disciplines, including Engineering, Operations and Finance. This multidisciplinary approach ensures a thorough assessment of a company’s technology, development processes and strategic alignment with business goals. Our team includes professionals with real-world experience in managing and scaling technology in diverse industries, which enables us to go beyond surface-level evaluations to identify underlying risks that may not be immediately apparent.

A&M is committed to identifying not just risks but also opportunities for value creation, highlighting areas where technology can be optimized, scaled or re-imagined to drive growth and improve EBITDA. This forward-looking perspective helps investors fulfil the full potential of their investment and devise strategies to maximize returns.

In conclusion, Product TechDD is an increasingly important step in the investment process, offering a 360-degree view of the technical aspects of a company. It mitigates risks, highlights opportunities and ensures that the technology aligns with the strategic vision of the business.

For investors, this thorough evaluation not only helps to identify potential red flags, but also unlocks the true potential of the investment, paving the way for informed decision-making and successful acquisitions.

Product Technical Due Diligence is a cornerstone of A&M's Integrated Due Diligence offering, complementing Commercial, Operational, Financial, Tax, and IT Due Diligences to unlock the full potential for value creation.

If you would like to know more, please contact our Product Technical Due Diligence experts: Roswitha Tertea, Antoine Wrobel or Séverine Huin.