IT Due Diligence Checklist: How to Evaluate Technology Risks

An IT due diligence checklist reduces risks in any merger and acquisition. Technology runs modern businesses. You’re acquiring a company and its assets, and some of the most critical are tech-related.

We’re going to explain how to create a comprehensive audit of the business’s:

• Tech stack
• Infrastructure
• Processes
• People

Read through our IT due diligence guide to learn more.

What Is the Due Diligence Process in IT?

An acquisition due diligence checklist for information technology involves conducting an independent investigation of the company’s tech environment. You need to dig deeper than just the software and hardware running the company.

You’re also considering:

• IT maturity
• Technical quality
• Scale and integration

Acquiring a company’s systems requires due diligence to be sure that the technology foundation of the business is clear.

Why IT Due Diligence Matters in Modern Acquisitions and Investments

Mergers and acquisitions (M&A) fail because of a lack of checks and balances. An IT due diligence checklist helps reduce these risks by:

• Uncovering liabilities, such as unaddressed cybersecurity concerns or non-compliant licenses.
• Validating valuation to ensure that the technology is properly valued. M&As require an understanding of Intellectual Property (IP), scalability and tech function.
• Incorporating integration strategies to identify synergies and conflict points between both tech environments.

Your IT due diligence (ITDD) allows you, as a buyer, to assess the future growth of the architecture, too.

Key Areas Assessed During IT Due Diligence

ITDD requires an analysis of:

Infrastructure and Architecture Review

Identify key concerns, such as: is the architecture modern and scalable? What’s the company’s state of cloud adoption? Where are the single points of failure – if they exist?

You also want to consider:

• Disaster recovery
• Business continuity

Security Posture and Vulnerabilities

What is the history of the company? Are there any known breaches? Did they integrate access control policies? What about penetration tests? You also want to know if there are:

• Incident plans in place
• Redundancies

Compliance and Regulatory Requirements

Adapt your IT due diligence checklist to the specific industry of the company. Do they comply with:

• GDPR
• HIPAA
• PIC DSS

Inquire about documented policies for data privacy within the company.

Software Assets and Licensing

Your M&A IT due diligence checklist must also list:

• Proprietary IP
• Open-source licenses
• Transferrable assets

Data Management Practices

If there is one thing to take away from this IT due diligence guide, it’s that sensitive data must be protected and stored properly. Learn about data retention and governance policies, as well as backup and retention plans.

What Are the Basic Steps of an IT Due Diligence Process?

The steps of an IT due diligence checklist are typically structured and executed by external consultants.

Step 1 — Collect Documentation and Access Information

The process starts with the issuance of a request list to the target company. The documents are organized in a secure virtual data room.

Key documentation includes:

• IT budgets
• Organizational charts
• Asset inventories
• Security policies
• System architecture diagrams
• Vendor contracts
• Software license agreements

Step 2 — Conduct Interviews With Technical Leaders

Interviews are part of an effective information technology due diligence checklist. Meet with the company’s CIO, IT Directors, CTO and key technical staff. This step:

• Validates the documentation
• Identifies crucial knowledge concentration risk
• Assesses the organization’s maturity

Step 3 — Technical Assessment and Gap Analysis

This is the core of an M&A IT due diligence checklist and the investigative phase of the process. Be sure to:

• Review code quality
• Analyze system performance metrics
• Assess the development pipeline
• Run vulnerability scans
• Perform a gap analysis to compare the target’s current state against the buyer’s security standards

Step 4 — Risk Scoring and Prioritization

Identified issues are:

• Categorized
• Assigned a risk score
• Quantified in terms of financial impact

Critical issues could squash the deal.

Step 5 — Final Report and Recommendations

Once you’ve gone through the IT due diligence checklist M&A, the findings are compiled into a report. That report includes an executive summary that highlights:

• Detailed technical findings
• Deal-breaker risks
• Recommendations
• Estimated remediation costs

These findings are used in negotiations and post-close integration plans.

Security and Risk Evaluation in IT Due Diligence

The primary focus of an IT outsourcing due diligence checklist is risk mitigation. Focus on:

• Incident response capability. Make sure the target has conducted tabletop exercises. Review their documented IR plans. Check logs for past security incidents and how they were handled.
• Security posture. Assess the maturity of the security framework. Is there evidence of regular security testing or MFA adoption?
• Data breach history. Investigate past data breaches or incidents. What was the response? Were there financial penalties or litigation?

Evaluating Software Quality & Engineering Practices

An M&A IT due diligence checklist should assess the technical health of the company’s proprietary code and development process.

Evaluate the target’s:

• Technical debt. Assess the volume of undocumented or complicated code that will hinder future development. This liability can inflate IT costs after the deal closes.
• Code quality. Review the use of version control and code review practices. Poor quality leads to downtime, bugs and slower feature development.
• Development practices. Evaluate the team’s agility and deployment frequency. Ad-hoc manual processes signal poor engineering maturity.

Red Flags to Watch for During IT Due Diligence

When going through your information technology due diligence checklist, look for these red flags:

• Major security failures: A history of unaddressed data breaches or a lack of security controls.
• Missing or flawed IP ownership: The company can’t prove it owns the source code for its core product.
• Outdated systems: Core systems are heavily customized or run on legacy hardware.
• Single point of failure: Operations and security knowledge is concentrated in one or two leaders who are not on retention agreements.
• Vendor lock-in: Critical software licenses are not transferable or contain clauses that would add unexpected fees post-close.

How Cyber Husky Supports IT Due Diligence for SMBs and Enterprises

At Cyber Husky, we do more than just follow an IT outsourcing due diligence checklist. Our service focuses on quantifying risk into actionable financial terms to:

• Enable informed negotiations
• Ensure a smooth integration path for businesses of all sizes

Contact us today to learn more about our process and to get started.

Summary: Building a Clear and Actionable IT Due Diligence Framework

An effective IT due diligence report is a necessity – not a luxury. It gives the buyer or acquirer a risk-adjusted valuation of the technology assets. The process transforms IT from a box of uncertainty to a transparent and quantifiable part of the deal.