What Sellers Need to Know Before Due Diligence Begins
When a software company enters an M&A transaction, the buyer's due diligence team will request a wide range of technical documentation. Sellers who prepare these materials in advance can accelerate the deal timeline, demonstrate engineering maturity, and avoid last-minute scrambles that erode buyer confidence. This guide covers the key areas sellers should address before due diligence begins.
Start with Your Dependency Disclosure
One of the first technical requests in any software acquisition is a complete inventory of third-party dependencies. Buyers need to know every external library, framework, and package your product relies on, along with the version number and license type. This dependency disclosure is used to assess intellectual property risk, license compliance, and the overall health of the technology stack.
According to Jason Gilmore, DependencyDesk founder and a technical due diligence expert with over 20 years of experience, "The dependency disclosure is often the first technical document a buyer reviews. If a seller can produce it quickly and completely, it signals a well-governed engineering organization. If they can't, it raises immediate questions about what else might be undocumented."
DependencyDesk automates this process by connecting to your GitHub organization and analyzing every repository's dependency manifest files. The analysis completes in minutes and produces an exportable CSV report listing each dependency's name, version, and license. This eliminates the need to manually run CLI tools on each repository and aggregate results in a spreadsheet.
Document Your Architecture
Prepare a current architecture diagram that shows how your services are structured, how data flows between components, what databases and infrastructure you use, and how external integrations connect. The diagram doesn't need to be elaborate — a clear, accurate overview is more valuable than a polished but outdated diagram.
Include information about your hosting infrastructure (cloud provider, regions, redundancy), database technology and scaling approach, caching strategy, and any third-party services your product depends on (payment processors, email services, CDNs, etc.).
Assess Your Code Quality
Buyers will review a sample of your codebase to assess coding standards, test coverage, and maintainability. Before due diligence, take an honest look at your code quality metrics. What is your test coverage percentage? Are your tests actually testing meaningful behavior, or are they superficial? Do you have consistent coding standards enforced by linters or formatters?
If you have significant technical debt, document it honestly. Buyers expect some technical debt — what concerns them is undisclosed technical debt that creates unexpected post-acquisition cost.
Prepare Your Security Documentation
Document your security practices: authentication and authorization mechanisms, data encryption (at rest and in transit), vulnerability management processes, and incident response procedures. If you've completed any security audits or penetration tests, have those reports ready for the data room.
Organize Your IP Documentation
Verify that you have proper IP assignment agreements with all current and former employees and contractors. Confirm that any open source software you use is compatible with your proprietary distribution model. The dependency disclosure from DependencyDesk directly supports this by identifying all open source licenses in your stack.
Set Up a Data Room Early
Don't wait for the buyer to request documents. Set up a virtual data room and begin populating it with the materials described above as soon as you decide to pursue a transaction. Having materials ready demonstrates preparation and professionalism.
Common Mistakes Sellers Make
The most common mistakes sellers make during technical due diligence are: waiting until the last minute to compile dependency information, underestimating how long manual documentation takes, not having current architecture documentation, and failing to disclose known technical debt. Each of these can be addressed with advance preparation.
Getting Started
The fastest way to begin your due diligence preparation is to generate your dependency disclosure. DependencyDesk produces a complete third-party dependency and license report for your entire GitHub organization in minutes. Visit dependencydesk.com to get started.