The pattern is familiar. A buyer acquires a healthy company: good customers, a good team, solid numbers. Six months after closing, the other side shows up. Systems that don't talk to each other. Manual processes that live in one person's head. Data nobody can find, or that only one person can find.
None of it was on the balance sheet. So nobody priced it before signing.
That's the most expensive blind spot in acquiring a small or mid-sized company: you don't just buy a business, you inherit how far behind it is. My view is simple. Assessed before closing, that gap isn't a trap; it's leverage. Discovered after, it's an invoice.
Why due diligence misses it
Standard due diligence looks at the financial statements, the contracts, the legal and tax position. Technology often gets a single line: "systems in place, no major issues."
The problem is that technology debt doesn't show up in the financials. It shows up in lost time, errors, re-keying, dependence on one person or one vendor and in the cost of everything that will have to be redone to grow. It's real, but it has no line in the accounts.
It also weighs more during an ownership transition. The seller knows every workaround by heart, often because they invented it. When they leave, part of the know-how leaves with them.
What to look at
Five areas are usually enough for a reliable picture, in days rather than months.
- Core systems. Which ERP, which CRM, which version, which contract? Are they still supported by the vendor, or near end of life? Who can change them?
- Data. Where do customers, products, prices and history live? In a system, or in spreadsheets? Who keeps them current?
- Key people. Which processes only work because one person knows how? What happens if that person leaves with the seller?
- Vendors and contracts. Licences, support contracts, the managed service provider: what transfers, at what cost and with what notice?
- Security and compliance. Backups, access, shared accounts, privacy obligations (Law 25 in Quebec): where does the company stand, and what could get expensive later?
Who should do it, and when
Two conditions make the assessment useful.
Timing. It belongs in the due diligence window, after the letter of intent and before the final offer. Earlier, you don't have access. Later, the findings can no longer change the deal.
Independence. The person doing it should have no stake in the outcome. Not the seller's IT provider, who knows the systems but has a relationship to protect. And not a vendor who would sell you the replacement, since every finding becomes a sales argument. You want someone who can tell you, just as plainly, that a system is old but perfectly adequate.
The deliverable doesn't need to be long. A few pages that the buyer, the lender and the accountant can all read are worth more than a thick report nobody opens.
Turn the findings into leverage
Once the picture is clear, it serves three purposes.
Negotiate. A priced technology debt is a concrete argument, like a major repair flagged in a building inspection. It can justify a price adjustment, a holdback or a specific clause.
Plan. The assessed debt becomes the buyer's first roadmap: what to stabilize right away, what to modernize next and what can stay as it is.
Finance. The cost of catching up can be built into the financing from the start, instead of surprising cash flow along the way.
That's where the gap becomes leverage. A buyer who knows exactly what they're buying also knows where the quick wins are.
The rule
Don't sign without one page that answers three questions in writing. What must be replaced or fixed in the next 12 months? Roughly what will it cost? And who in the company is indispensable to running the current systems?
Checklist before closing
- An inventory of systems: name, version, vendor, end of support
- Where the key data lives, and who keeps it current
- The processes that depend on a single person
- Transferable licences and contracts, with their costs and notice periods
- The state of backups, access and shared accounts
- Privacy obligations and how well they're met
- An estimate of the catch-up cost over 12 to 24 months
- The quick wins available in the first months
Where to start
If you're in an acquisition process, the best time to look at technology is before the final offer, while there's still time to account for it. A 30-minute call is enough to see what to examine in your case.