Dr. Jacob Justus Leidner
CFA, Senior Manager, Advisory
In the digital age, software companies are the driving force behind innovation and growth. The value of their businesses largely depends on the performance, quality, and scalability of the software they develop.
Therefore, when it comes to transactions involving software companies, the focus is not only on the business model, but also on the substance and future viability of their digital product portfolio. Issues in the IT architecture, code, or development processes can lead to significant operational and financial risks. These risks directly influence the transaction price and long-term success of the transaction.
Among other things, deal teams want to know the following: How technologically stable and resilient is the software? How carefully and efficiently are the development processes designed? How competent is the development team? Software due diligence provides the answers to these questions.
However, software due diligence is not only relevant for transactions involving traditional software companies. It is also crucial for companies that rely heavily on in-house software, as it helps deal teams to assess their competitiveness and enterprise value.
Why is software due diligence essential for deal teams?
- Risk identification: Identification of technical risks, e.g., weaknesses in the code, cloud readiness, or loss of expertise due to developer turnover
- Value creation opportunities: Identification of innovation potential, e.g., through the use of modern development and automation methods or artificial intelligence (AI) technologies that enable competitive advantages
- Post-merger integration costs: Providing an early indication of the compatibility of software products and the underlying development, testing, operation, and maintenance processes
- Negotiation leverage: Data-driven arguments for price and contract negotiations
What does the software due diligence cover?
Our software due diligence is tailored to the specific circumstances of a transaction and the needs of the deal teams, focusing on all material software solution-related risks. Typical areas of focus include:
- Overview of the software product solution
- Product development process
- Product development organization
- Tool support and security
- Service and support processes
BDO is your partner for software due diligence
- We are one of the world’s leading transaction advisors: Thanks to our in-depth expertise and global presence, we consistently rank among the top transaction advisors in leading rankings
- We act in a risk- and opportunity-oriented manner: Software solution-related risks are identified and value creation potential is highlighted at the same time
- We are pragmatic and transaction-oriented: Our software due diligence is tailored to the specific situation of the target company and the needs of the deal team
- We have a proven track record: Strategic investors, private equity firms, and financial institutions trust us - in Germany alone, we are involved in around 100 transactions per year
- We are one of the leading one-stop shops on the market, offering all the necessary due diligence services
Further due diligence topics:
Our team of Software Due Diligence
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Robert Dieckmann
Senior Manager, Advisory, Management Advisory