What Does Technology Due Diligence Involve?
Technology due diligence (TDD) typically involves subject area experts assessing the functionality and resilience of some or all of the technology employed and/or marketed by the subject company.
TDD can be broken down into the assessment of two distinct areas: the company’s technology infrastructure (IT systems, manufacturing equipment etc) and any unique technology that it has created.
Technology Infrastructure
A company’s “Technology Infrastructure” includes the items of technology that it relies upon to carry out its business.
Even companies that offer traditional (as opposed to tech-based) products and services have a technology infrastructure that requires TDD assessment.
For most organisations, technology infrastructure will normally consist of IT equipment, and possibly some other manufacturing or specialist technology such as printing equipment.
In certain cases the technology infrastructure can also contain very specialist, cutting edge technology. Semiconductor manufacturers, for example, are likely to have “clean room” facilities containing specialist fabrication equipment. The age, suitability and lifetime of this equipment, as well the ability of personnel to operate it, might all be covered during a TDD assessment.
In addition to highlighting problems, technology infrastructure assessments also look for opportunities for process streamlining to achieve operational efficiencies and cost reduction. The TDD report advises on areas where this can safely be employed and where it would be ill advised.
Unique Technology
Companies who rely on their own unique technology products for some, or all, of their income stream require further analysis. First and foremost, the company’s own representations about the capabilities, resilience, competitive advantages etc. of their products must be verified by independent experts, and the views of these experts collated into a single conclusion.
Assessors look for shortcomings in the product offerings and highlight implications for the value of the proposed investment or acquisition.
An assessment of the “Unique Technology” will frequently include some or all of the following activities:
Hands-on Testing
The TDD assessment will usually involve the physical testing of a product by experienced experts. This might mean running a variety of tests specific to the type of product (e.g. wind-resistance testing for an antenna, traffic load testing for a web application etc). The expert verifies any existing claims and tests the product to its limits.
Analysis of the Research and Development Process
The development process, from idea stage through to beta and full product release, is examined. Company culture, training programs, and bug tracking/resolution procedures are also analysed.
Investment decisions are often based upon a development plan, but it is crucial to know whether the development time and cost has been estimated correctly. A good TDD assessment will examine whether the proposition’s development plans, schedules and budgets are sensible and attainable.
Development plan analysis will also examine whether the innovation process will continue after first launch, and verify that a reliable procedure is in place to ensure the product evolves to meet customer needs through bug fixing and satisfying new feature requests. A company’s history of innovation and track record of meeting milestones are examined as a useful indicator of future performance.
Customer Interviews
A selection of existing, or potential, customers are interviewed and their requirements assessed in relation to the likelihood of fulfilment by the product.
A customer analysis might cover the demand for, and feasibility of, customisation, the record of technical problems and an assessment of customer service history.
Analysis of the Surrounding Market
A surrounding market assessment looks at the current trends in relevant market sectors and examines the competing products that are likely to affect commercial opportunities on a global, regional and local scale.
TDD will frequently include an examination, and even active testing, of competing products to compare capabilities and limitations.
An Intellectual Property/Legal Assessment
Due diligence in this area might include:
- A review of the patent portfolio for hidden value and analysis of the current approach to protecting and exploiting it.
- Shielding from liability in potential patent infringement suits.
- A review of marketing materials to ensure that product details have not been misrepresented.
Copyright agreements, non-disclosure agreements, software licences etc. may also be examined.
Personnel
The importance of key staff skills cannot be overestimated. Assessing the knowledge and skills of technical personnel skills is a central part of the TDD process.
Through interviews with technical staff, and reviews of experience records, the TDD assessor builds a picture of how vital skills are distributed and how loss of key personnel might affect the value of the investment.
A personnel review may also include analysis of incentive programs, motivation levels and the market awareness of employees.
Next week: Conclusions of a TDD Study