In many private equity transactions, technology diligence is still treated as a defensive exercise.
A generalist team moves through an IT questionnaire under a compressed timeline, a cybersecurity scan is added late in the process, and the final report is framed around a narrow question: is there anything here that could stop the deal?
That question is too limited.
After more than 25 years in enterprise technology leadership, including Group CIO roles at two private equity funds overseeing roughly 35 portfolio companies, I have seen the same pattern from both sides of the transaction.
Technology diligence should answer a more important question: what is technology worth to the investment thesis?
The gap between those two questions is where value often disappears during the hold period.
What the Checklist Misses
Traditional diligence is reasonably good at finding visible risks:
- Aging operating systems.
- Weak backup practice.
- Expired firewall contracts.
- Obvious security gaps.
It is far less effective at identifying the technology issues that quietly reshape the economics of a deal.
Those issues rarely appear neatly on a checklist.
- They are the ERP replacement no one modeled, discovered eight months after close when finance struggles to produce covenant reporting.
- They are the two-person IT group where one employee carries nearly all of the institutional knowledge.
- They are the customizations embedded in a legacy platform that turn a supposedly straightforward add-on acquisition into a multi-year integration effort.
These are not merely technology problems. They are investment-thesis problems.
A buy-and-build plan depends on fast integration. That plan changes materially if every acquisition requires a new platform. A margin-expansion thesis depends on timely, reliable data. That thesis weakens if systems cannot report margin below the company level.
When diligence does not connect technology findings to the value creation plan, the deal team may end up pricing the company it hopes it is buying rather than the company it is actually acquiring.
Diligence Is the First Draft of the Value Creation Plan
The required shift is simple but significant. Technology diligence should not end as a risk report. It should become the first working draft of the value creation plan, completed before the deal closes.
Viewed this way, diligence should answer three questions in sequence:
- What technology debt will consume capital during the hold period, and is that capital reflected in the model?
- Where can technology accelerate the thesis through revenue capture, working capital improvement, margin expansion, or faster integration?
- What will the next buyer’s diligence team find at exit?
That final question changes the conversation. Every hold period ends with another diligence process. The ERP project postponed for budget reasons, the security gaps managed through workarounds, and the reporting package held together with spreadsheets all resurface during a sale process as a valuation discount, an escrow demand, or a delayed close.
Looking at technology through the lens of the future buyer moves the discussion from cost control to enterprise value.
What the Portfolio View Teaches
A portfolio view makes these patterns easier to see. Across industries, the same themes tend to emerge again and again:
- Technology debt becomes predictable. Underinvested infrastructure, systems inherited from prior acquisitions, reporting processes dependent on a single analyst, and security models built for a smaller business are not one-off surprises. After enough deals, they become patterns that should be identified early and priced accordingly.
- Vendor spend is often an overlooked source of EBITDA. Portfolio companies frequently negotiate software, infrastructure, and service contracts independently, even when sponsors have the leverage to negotiate across the broader portfolio. In my two fund roles, consolidating vendors, contracts, and licensing produced more than $11 million in annual savings, EBITDA that did not require a major operating change.
- Cybersecurity affects deal economics, not just the risk register. In my experience, disciplined portfolio-wide security programs reduced incidents by 85% and lowered cyber insurance premiums by 35%. Buyers recognize both outcomes. A credible security story can shorten exit diligence and remove a common point of negotiation.
- ERP condition often determines integration speed. In roll-up strategies, the platform decision can dictate how quickly acquisitions convert into synergies. That makes ERP condition a deal-team issue, not simply an IT workstream.
The First 100 Days: Converting Findings Into Value
A diligence report that stops at close leaves value on the table. Within the first 100 days, findings should be converted into an operating agenda and sorted into three categories:
- “Fix now” for items that threaten operations or compliance.
- “Fund during the hold” for investments tied to specific thesis outcomes.
- “Disclose and defer” for known risks that should be documented as part of the exit story.
The discipline that matters most is ownership with financial accountability. Each item should have an owner, a timeline, and a clear link to EBITDA, working capital, or valuation multiple impact.
In my operating roles, this approach helped translate technology programs into more than $180 million in operational improvements, including an $8 million working capital improvement from one ERP modernization.
The technology was the enabler. The financial framing made the investment actionable for the board.
Three Changes Sponsors Can Make Tomorrow
First, bring an operator into diligence, not only an assessor. A checklist can identify issues. An operator can price them, sequence them, and connect them to the investment thesis.
Second, apply the exit-buyer lens before signing. If a future buyer would discount for an issue at sale, the sponsor should address it, or price it, at purchase.
Third, make technology leadership accountable to the thesis, not just service delivery. A CIO measured against EBITDA outcomes will make different decisions than one measured only by ticket queues, and that difference becomes visible by exit.
Private equity does not have a technology problem. It has a translation problem. Technical findings and investment theses often talk past each other during the short window when it matters most.
The firms that close that gap will avoid surprises, buy better companies than their competitors think they are buying, and sell better companies than the ones they bought.
