When assessing the value of a company during a merger or acquisition, the state of its technology stack can either support a premium valuation or reveal hidden risks that dramatically reduce it. One of the most common and underestimated issues we uncover is technical debt. Tech Debt = accumulated compromises in software and infrastructure that affect scalability, security, and maintainability.

At Emanda, we’ve developed a structured, platform-enabled approach to technology due diligence that identifies and quantifies these risks. Through Emanda.app, we deliver deep insight into the condition of a company’s technology assets, helping both acquirers and sellers make informed decisions.

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What Is Technical Debt?

Technical debt refers to the cost of design or development shortcuts taken during a system’s evolution. Often made in the interest of speed or expediency, these choices tend to compound over time, reducing agility and increasing the cost of change.

Examples of technical debt include:

• Poor or inconsistent coding practices
  
• Lack of unit, integration, or end-to-end testing
  
• Insufficient documentation and onboarding materials
  
• Outdated frameworks or monolithic architecture
  
• Unclear deployment and release processes
  
• Security gaps, such as hardcoded credentials or unencrypted storage
  

While these may seem like engineering issues, they have direct commercial impact during an acquisition.

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The Cost of Technical Debt in M&A

Technical debt is one of the leading contributors to risk-adjusted reductions in company valuation. During the due diligence process, the presence of substantial technical debt can:

• Extend integration and transition timelines
  
• Increase the cost and effort of post-deal remediation
  
• Undermine acquirer confidence in the technical leadership team
  
• Expose the business to data security, compliance, or infrastructure risk
  
• Reveal operational fragility or knowledge silos that limit scale
  

In one instance involving a FinTech company, we uncovered significant shortcomings including undocumented systems, production credentials stored in plain text, and reliance on a single developer for critical components. These findings shaped deal structure discussions and influenced timeline planning, even though the business fundamentals were otherwise strong.

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Example: How Technical Debt Impacts Valuation

Companies are often valued based on a multiple of maintainable earnings (typically EBITDA). If technical risks suggest higher ongoing costs or integration delays, it can lead to:

1. A reduction in the EBITDA base, or
   
2. A reduction in the multiple applied.
   

Scenario A: Pre-Diligence Baseline

• EBITDA: $2.0 million
  
• Valuation Multiple: 5x
  
• Estimated Valuation: $10 million
  

Scenario B: With Unresolved Technical Debt

Due diligence uncovers:

• $300,000 one-off remediation cost
  
• $200,000/year in avoidable engineering inefficiency
  
• Delays in roadmap, security vulnerabilities, and team reliance risks
  

EBITDA adjusted to $1.8 million
Multiple reduced to 4.5x
New valuation: $8.1 million

Total impact: $1.9 million reduction in value due to unaddressed technical debt.

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Example: Seller-Side Remediation to Preserve or Increase Value

Now let’s look at the same business, but with proactive remediation prior to the sale:

Seller Invests Ahead of Process

• $150,000 invested to address:
  
  • Codebase cleanup
    
  • Implement CI/CD pipelines
    
  • Standardise deployment environments
    
  • Remove production secrets from code
    
  • Add minimal test coverage and documentation
    

This results in:

• Increased buyer confidence
  
• Removal of major risks flagged during diligence
  
• Preservation of full $2.0 million EBITDA base
  
• Multiple remains at 5x
  

Valuation holds at $10 million
Net return on investment: $1.85 million uplift for $150,000 spent

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Key Takeaway for Sellers

A targeted technical uplift prior to a transaction is often one of the highest ROI investments a founder can make. By preemptively addressing the kinds of issues that would otherwise result in discounting or renegotiation, sellers retain both their valuation multiple and negotiating leverage.

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How Emanda.app Supports Technology Due Diligence

Emanda.app is designed to turn complex technology assessments into actionable insight. It supports our diligence process with structured analysis across code quality, infrastructure, security, scalability, and team capability.

Technical Scorecards and Architecture Reviews

We assess core components of the stack, including:

• Code quality and structure
  
• Architecture and scalability readiness
  
• Environment parity and CI/CD maturity
  
• Security practices, including credential storage and access control
  

Executive Summaries and Recommendations

Emanda.app generates clear, concise summaries that help founders prioritise remediation efforts before going to market, including:

• Top three critical issues
  
• Top three actions required
  
• Estimated cost and timeline for remediation
  
• Impact on team performance and acquirer confidence
  

Spin-Off and Integration Readiness

We also assess how well the business can stand alone or integrate post-acquisition. This includes:

• Hosting and deployment separation
  
• IP clarity
  
• Release process independence
  
• Resource model scalability
  

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Final Thoughts

Technical debt doesn’t just affect engineering teams, it affects how acquirers perceive risk, value future cash flows, and make investment decisions.

For acquirers, identifying and quantifying technical debt is essential due diligence.
For sellers, remediating it early is a strategic investment that can preserve, or even increase, company value.

Emanda.app provides the clarity, structure, and benchmarking needed to align both sides around reality, and get deals done with confidence.

If you’re preparing for an exit, acquisition, or capital raise, talk to us about how to prepare your technology environment the right way.