The Silent Deal Breaker: Technical Debt in M&A

In the high-stakes world of Mergers and Acquisitions (M&A), the focus has traditionally been on financial metrics: EBITDA, working capital, customer concentration, and legal liabilities. However, in 2026, a new variable has entered the valuation equation, often with devastating effect: Technical Debt.

The Hidden Liability

When a Private Equity fund acquires a mid-market industrial target, they are not just buying machinery, patents, and customer lists. They are buying the target's entire digital infrastructure.

If that infrastructure is riddled with legacy code, unpatched vulnerabilities, or "Shadow IT," the acquirer is effectively inheriting a massive financial liability. We call this the "Cyber Lemon." You buy the company for growth, but you spend the first 18 months - and millions of Euros - just fixing the plumbing to prevent a collapse.

According to global data, Cybersecurity issues are now a top reason for deal abortion.

Case Study: The "Red Flag" Impact

We recently audited a manufacturing target valued at 45M EUR. On paper, the financials were solid. However, Intarmour's "Red Flag" Cyber Audit revealed critical structural flaws that the financial due diligence missed:

1. Obsolescence: The core production software was running on end-of-life operating systems (Windows Server 2008) that could no longer be patched against modern ransomware.
2. Sovereignty Risk: The target relied on a source-code library maintained by developers in a sanctioned jurisdiction, creating a massive compliance risk for the PE Fund's LPs.
3. Credential Leakage: 15% of the company's employee passwords were available for sale on the Dark Web.

The Financial Reality: The remediation cost to bring the infrastructure up to a minimal investable standard was estimated at 1.2M EUR in immediate CAPEX post-closing. The Result: The buyer used our report to successfully negotiate a 1.5M EUR reduction in the acquisition price to cover the risk and remediation.

Shifting the Due Diligence Paradigm

Modern Due Diligence must go beyond a simple Excel questionnaire sent to the target's IT Director. A questionnaire captures what they think they have. An audit captures what they actually have.

Effective Cyber Due Diligence requires:

1. OSINT Reconnaissance (Passive) Before you even sign the NDA, we can assess the target's external posture. We check if their credentials are leaking, if their servers are exposing RDP ports to the internet, and if their domain reputation is burned.

2. Compliance Stress Test Can the target actually survive a NIS2 audit? If you buy them, will you immediately be liable for a fine of up to 2% of global turnover? We assess the "Regulatory Debt" hidden in the deal.

3. Code Valuation Is the proprietary software a scalable asset, or is it a ticking time bomb of spaghetti code? We analyze the Software Bill of Materials (SBOM) to identify licensing risks and vulnerabilities.

Conclusion

Cybersecurity is no longer an IT operational issue; it is an Asset Valuation issue. Investors who ignore digital due diligence do so at the peril of their returns.

Don't inherit a breach. Quantify the risk before you sign.