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Caveat Emptor
This is the second of three blog posts to highlight Noremo’s approach to Tech Due Diligence; the opportunities and the pitfalls.
As the weather begins to warm and the spring flowers emerge, Private Equity teams shift gears; from the analysing and strategising of the winter hibernation months to execution of investment action plans for their priority targets. PE firm investment analysts will review reams of documents posted to digital data rooms to inform their investment theses and refine their financial models. PE firm investment principals will meet with sell-side investment bankers and management teams at prospective target companies; and some may even get out and about to inspect target company infrastructure.
Technology is one of the least well understood facets yet truly vital critical success factors for determining prospects for future business success. Commercial Due Diligence, Financial Due Diligence, Legal Due Diligence are well understood activities for identifying and mitigating risk for people with Corporate Finance and Legal backgrounds; the very same folks that dominate senior level positions at most Private Equity funds. Yet Tech Due Diligence is too often seen as a necessary yet inconsequential tick-box exercise that can be carried out at cost by a junior consultant from one of the same Big-Four accountancy firms that’s been engaged to perform a full suite of Due Diligence services.
This is a mistake. Caveat Emptor. Technology forms a vital foundational pillar for pretty much any business in every kind of industry. This was already true a decade ago with the widespread deployments of ERP, CRM and Financial management systems complete across most mature businesses. Yet, in the words of the great technologist, visionary and investor Marc Andreessen, software continues to “eat the world”1. Andreessen made that prophetic statement back in 2011 and with the dissemination of Cloud, Mobile, IOT and Data platforms in the meantime, the layers of technology continue to rise; companies merge or get acquired, systems and processes get duplicated (and confused!) and very rarely do legacy systems ever get replaced or switched off.
Future techno-archaeologists will admire and ruminate on these systems and their interfaces that have built up over time; just like real archaeologists who brush back the layers of mud and stones during the excavation at an ancient Roman ruin. These layers of technology all add cost to the Income Statement but far worse, they massively slow down the company’s ability to evolve fast – to design, integrate and deploy new tech platforms at scale; whether that’s those required to support marketing, sales or customer service business in new geographic domains, to launch a new product variant, or to add subscription services to complement an entirely new product line.
And that’s before we even begin to talk about AI. In 2026, stock market analysts are increasingly worried that AI is going to eat software2. For some sectors, including the major listed SaaS platforms that may well be true or perhaps expectations that their high margin recurring revenues will continue forever may indeed need to be tempered; hence the recent stock price declines. However, for other industries, AI is set to transform human and machine productivity within the next 3 years; if it’s not doing so already. And for some firms and some target companies that are up for sale, they will be looking to showcase their new AI supertools that’s going to be a major competitive advantage in their industry. You can hear their sell-side investment banker proclaiming that “Target Co. is AI first and AI forward!!!” But how do you really know? What validity do you put to those claims? How do you avoid Confirmation Bias amongst your own team? And does the business in cold reality, just have a whole spaghetti mess of different systems that have built up over the years, with duplicate processes, manual interventions, messy and incomplete data that’s going to restrict growth, slow operational efficiency improvements and take far longer to transform than the typical 3 to 5 year exit timeframe to reach an achievable EBITDA multiple, that the prospective PE investor wrote into their original investment thesis for the proposed acquisition.
Just like the house buyers in the AI generated illustration at the top of this post, when guided by the real estate agent to inspect a new house for sale on a sunny spring time morning, don’t get distracted by the pretty picture of the intriguing woman on the wall! Engage specialists who do have the expertise from 25+years experience in the technology and consulting industries, who have real-world Portfolio Company CIO / CTO leadership experience, who understand AI because they’ve been working with it for 10+ years already and who know how to peel back those layers of techno-archaeology. We help you uncover those hard-to-spot Tech Architecture and Cyber Security risks; and to assess Tech team capabilities during Due Diligence. We also offer full value Tech Strategy guidance on Value Creation plans, Tech Roadmap and Architecture guidance, initiative prioritisation, cost estimations and more, in those vital and sometimes challenging 100 days immediately after deal completion. More on that next time.
In the next article we’re going to cover, Tech Due Diligence and how it relates to your Portfolio Company's future:
- Tech Strategy
Image credit: Google Gemini - Nano Banana Pro
Footnotes:
1 https://a16z.com/why-software-is-eating-the-world
2 https://www.businessinsider.com/software-ate-world-now-ai-eating-software-saas-anthropic-2026-2