Tech companies are exposed to different risks because of the fact that they produce technology that’s used by others, and because they often take outside investment to grow, which comes with additional expectations of increasing business value. Business investments, partnerships, mergers, and acquisitions also introduce additional scrutiny in the form of technical due diligence and software security audits. This blog explores the types of technical due diligence and software security audits that technology businesses can expect, as well as how businesses can incorporate audited areas into day-to-day operations, to lessen the manual work required and minimize the disruption to customer and development work that one-off audits can cause.

What is a Technical Audit?

A technical audit, also called technical due diligence (TDD) when done as part of potential merger or acquisition process, is a comprehensive evaluation of a company’s technology, software, infrastructure, and development processes to assess their strengths, risks, and overall alignment with business goals. It is commonly performed before investments, mergers, acquisitions, or partnerships to ensure that the technology stack in question is scalable, secure, and maintainable.

Why are Technical Audits Important

The purpose of a technical audit is to assess the level of risk associated with a business and in particular, that business’s technology. External and internal parties know that business pressure often pushes software teams to prioritize speed over security. Therefore, audits are essential for discovering what risks exist and how challenging they’ll be to resolve. But the reality is that tech companies don’t typically like audits because they can be time-consuming, disruptive, and expose hidden risks that may require costly fixes. 

So how can businesses most effectively mitigate risks and demonstrate to external parties the value of their business? By integrating security and compliance early on, businesses can build trust, strengthen legal protections, and increase their business value. And with 98% of codebases relying on open source software, application security is a key part of mitigating risks like vulnerabilities and outdated dependencies that can escalate if not addressed early, causing costly disruptions, reputation damage, and abandoned business deals. As businesses continue to build their software, the number of dependencies and complexity increases, and fixing issues becomes harder and more public. Therefore, businesses that prioritize security from the start can most easily prevent long-term risks, frustrating team disruptions, and surprises during one-off technical audits.

When Do Technical Audits Typically Occur?

Although technical due diligence and one-off audits occur at different times and frequencies depending on the type, size, and stage of a company, it’s common and even required for security audits to occur as part of the following scenarios:

1. Before a major product release: Security vulnerabilities in dependencies can expose products to attacks, so technical audits before major releases can be valuable.
2. Before a business partnership or acquisition: External stakeholders will scrutinize your security posture, so companies often opt for their own technical audits to prepare.
3. Regulatory or compliance updates: New laws or industry standards may require new or improved software security practices.
4. After a security incident: If something goes wrong, a thorough audit helps pinpoint and fix issues, and may be expected by customers, investors, partners, and other stakeholders.
5. Regular security maintenance: Periodic audits help catch issues before they become critical. These are not necessary if continuous monitoring and application security tools cover audit areas, and are a major reason why companies adopt ongoing dependency scanning, vulnerability management, and license compliance checks.

What Gets Audited in a Technical Audit?

Technical due diligence typically spans a business’s product, systems, and processes, including such areas as code quality, security, infrastructure, scalability, technical debt, open source risks, and team processes to assess maintainability, security, and compliance. Most audits also evaluate architecture scalability, DevOps or DevSecOps efficiency, software licensing, and business alignment to identify risks, integration challenges, and long-term viability. Key areas assessed in a technical audit and their primary purpose include:

1. Code Quality and Architecture: Analyzing the software’s structure, maintainability, scalability, and adherence to best practices.
2. Security and Compliance: Identifying vulnerabilities, security risks, and compliance with industry standards like GDPR, HIPAA, SOC 2, and others.
3. Infrastructure and DevOps: Evaluating cloud architecture, hosting, CI/CD pipelines, and system reliability.
4. Scalability and Performance: Assessing whether the system can handle increased demand and growth.
5. Technical Debt and Maintenance: Identifying outdated dependencies, legacy systems, and areas requiring refactoring.
6. Open Source and Licensing Risks: Reviewing third-party dependencies for potential legal or security issues.
7. Team and Development Processes: Examining engineering workflows, documentation, and secure software development practices.

Because open source software garners additional scrutiny, a technical audit typically covers multiple aspects of open source software usage such as:

1. Dependency tracking: Keeping an up-to-date inventory of all open source components in your codebase.
2. License compliance: Ensuring all dependencies are used according to their respective licenses.
3. Known vulnerabilities: Identifying CVEs and other security issues in third-party code.
4. Version control: Ensuring dependencies are updated regularly to minimize risk.
5. Access control: Restricting unnecessary privileges to reduce attack surfaces.

Why Is Technical Due Diligence Important?

Technical due diligence is another term for technical audits, specifically focused on assessing the value and risks associated with a company’s technology. Technical due diligence is important because it:

1. Helps investors, acquirers, and executives make informed decisions about their technology’s strengths, risks, alignment with business goals, and needs.
2. Enables businesses to maximize the perceived value of their business.
3. Identifies risks that could impact scalability, security, or compliance.
4. Uncovers hidden costs related to technical debt or inefficient processes.
5. Ensures technology aligns with business objectives and future growth.

Who’s Involved in Technical Audits?

Audits aren’t just for security teams, but rather include a variety of stakeholders such as:

1. Software engineers: Developers are responsible for understanding security concerns and following best practices.
2. Security and IT teams: These teams provide insight into system-wide risks and security policies.
3. Legal teams: Legal team members can advise on business-specific rules and acceptable risk, such as allowable licenses and compliance needs.
4. Management: Leadership ideally has visibility into security risks that could impact the business, as well as company-wide policies affecting technology security, scalability, and performance.

How To Make Technical Audits Easier

To make software security audits and technical due diligence easier, build security into software development workflows. Start with the following practices:

1. Implement and enforce secure coding practices: Train your team on common security pitfalls and how to best address issues application security tools might find, as well as the importance of a security-first mindset to avoid surprises and minimize operational disruptions from security incidents or applications that need to be re-written.
2. Automate dependency and security scans: Use tools like SOOS to scan for vulnerabilities in your software on an ongoing basis, including within the IDE in real-time as developers are writing software programs, and in development pipelines before software is committed.
3. Maintain an up-to-date software bill of materials (SBOM): Keep a current SBOM so you know what’s in your codebase, i.e. the ingredients that make up your software applications, at all times.
4. Establish policies for selecting and updating open source components: Avoid unmaintained or high-risk libraries. With SOOS, you can know what’s okay before you start coding, by running one-time scans on libraries not yet integrated into applications. That’s in addition to setting up continuous scanning for already live software.
5. Perform incremental security reviews: Smaller, frequent checks are better than a massive, disruptive audit. SOOS’s tools scan software on an ongoing basis, and with configurable settings and business-specific risks, you can specify the types of issues that need attention upfront so you get notified of only what matters most to you, without being distracted by the rest.

Real Life Examples of Technical Audit Decisions

You might be wondering, what happens after technical audits? The answer depends on what the audit uncovered and what the expectations of the involved parties are. Acceptable levels of risk vary and there have been several cases where acquisitions or investments were called off because companies failed technical due diligence. Here are a few notable ones:

1. Cisco Chose Not To Acquire Springpath Due to Software Scalability and Integration Issues

• What Happened? Cisco looked at acquiring Springpath; however, during due diligence, Cisco discovered serious scalability and integration issues with Springpath’s software which didn’t meet Cisco’s long-term requirements.
• Outcome: The deal was delayed, and instead of an immediate acquisition, Cisco opted for a strategic investment. Cisco eventually acquired Springpath, but only after significant improvements were made and Springpath’s future was uncertain for a long time.

2. Visa Abandoned Its Acquisition of PlaidDue to Security Risks and Compliance Issues

• What Happened? While Visa officially backed out of acquiring Plaid due to antitrust concerns, reports suggested that part of the reason they didn’t proceed was because of technical debt and security vulnerabilities in Plaid’s infrastructure. Visa’s security teams had concerns with Plaid’s API integrations and data handling in particular, which posed long-term security risks and compliance issues that appeared to be out of alignment with regulations.
• Outcome: The deal was called off, and Plaid had to pivot its technology strategy to improve security and compliance.

3. IBM Decided Not to Acquire Sun Microsystems

• What Happened? IBM was close to acquiring Sun Microsystems (creators of Java and Solaris), but decided not to proceed due to technical and licensing concerns. Sun’s software stack (including Java) had complex open-source licensing agreements, which IBM feared could lead to legal disputes.
• Outcome: The deal fell apart, and Oracle acquired Sun instead, leading to legal and business challenges (such as lawsuits over Java licensing).

Lessons Learned from Failed Technology Acquisitions

The above are just a few of many examples of companies deciding not to invest, merge, acquire, or partner with other companies because of their technology’s limitations and risks. From these examples and more, we can conclude the following:

1. Technical Debt Kills Deals: If a company has outdated infrastructure, scalability issues, or unmanageable codebases, it can scare off acquirers.
2. Security and Compliance Matter: Regulatory risks, data privacy issues, and poor security practices can be deal-breakers.
3. Open Source Risks Receive Additional Scrutiny: Many acquisitions fall apart due to both unclear software licensing terms and perceived conflicts, and extensive dependencies and vulnerable open source components discovered.
4. Integration Complexity Is a Major Downside: If merging two systems or tech stacks is too complicated, buyers may walk away, underscoring the importance of easy-to-maintain systems and practices, such as effectively managing software inventory through the use of SBOMs.
5. Long-Term Viability is Key: Investors, acquirers, and partners want technology that will last and scale, not just function today. They expect to see automated systems and lightweight management of tools and technology, as well as tools that can scale as their business grows. If it seems systems need to be overhauled to work long-term, they’re not going to want to put the time and money into redoing them.

Conclusion

Technical audits aren’t just a box to check, they’re a necessary part of maintaining high performing, secure, and maintainable software, and maximizing your company’s value. Regular audits help prevent security breaches, ensure compliance, and ultimately keep your team focused on building great software instead of chasing down issues and responding to incidents. In addition, they help set your business up to achieve its long-term business goals without the risk of significant manual work and business disruptions to fix issues at specific points in time, such as before a merger can take place. 
To learn more about how SOOS helps companies easily identify and resolve risks through automated scanning and regular audit-related tasks, talk to our team. You can also try the SOOS platform out now to see how easy it is to build business value without dedicating significant time, money, or manual resources to make it happen.