Technical Due Diligence in Canadian M&A: Guide & Checklist

Technology due diligence in mergers and acquisitions (M&A) is no less critical than financial due diligence. Neglecting this process might lead to huge reputation and financial losses.

This is what happened with Marriott’s acquisition of Starwood, for instance. When Marriott acquired Starwood Hotels and Resorts in 2016, it unknowingly inherited a data breach that had begun in 2014, which later exposed sensitive guest information and led to major legal, regulatory, and reputational fallout after its discovery in 2018.

To prevent such outcomes, dealmakers perform technical due diligence (IT due diligence). This article explains why it’s important, how to conduct it, and why having a tech due diligence checklist is a must.

What is technology due diligence?

Technology due diligence (also called tech, IT, or technical due diligence) is a detailed assessment of an organization’s technology environment. This typically includes software, infrastructure, systems, data practices, intellectual property, and engineering operations. 

Why does it matter?

• It uncovers hidden risks in the technical due diligence process, such as outdated software, compliance failures, or integration obstacles.
• It helps ensure that the technology aligns with the business strategy and supports long-term delivery rather than creating drag.
• It gives the acquirer clarity on the value of the target’s technology assets and any liabilities they may inherit (such as IP disputes or security debt).
• It supports smoother post-merger integration and better planning for how the target’s technology will mesh with the buyer’s systems, management process and infrastructure deployment model.

Note: Explore how a dedicated virtual data room for life sciences can improve processes such as capital raising, IPO, clinical trials, and M&A.

Key areas of review during tech due diligence

Here’s what is typically investigated by M&A teams during tech due diligence.

Business strategy and roadmap

Every tech due diligence process starts with understanding how technology supports the company’s business strategy. For a software company, this means reviewing the business roadmap and how products align with long-term goals. For service or non-product firms, it’s about assessing whether IT systems and tools effectively support operations and customer delivery. The goal is to ensure technology enables growth, not limits it.

Organizational structure and management

Here, the review focuses on the technology team setup and management process. Analysts examine the organizational chart, key personnel, and reporting structure to evaluate decision-making efficiency. Strong leadership, consistent escalation rates, and clear communication channels show a mature management lifecycle and reliable team business continuity.

Software and technology

This step assesses the company’s core technology environment. For product-driven businesses, it involves software architecture, code review, and integration quality. In other cases, it includes business tools overview, system interconnections, and infrastructure reliability. The aim is to evaluate whether the entire process supports scalability, stability, and continuous improvement.

IT infrastructure and systems

Infrastructure defines how technology operates behind the scenes. Reviewers assess cloud and data centres, deployment independence, and the infrastructure deployment model. They also look at management process delivery trends, monitoring systems, and backup practices to ensure the company can scale and recover efficiently.

Product or service quality

Whether it’s a digital product or a service platform, quality remains a key technical aspect. The review checks how performance, usability, and reliability are measured through sprint planning, QA testing, or customer feedback loops. Consistent results indicate a well-structured management process and a strong customer-focused mindset.

Software development lifecycle and business tools

Evaluating the software development lifecycle (or broader management process) helps determine how efficiently work is planned and delivered. The due diligence team analyses release planning, documentation, and continuous improvement practices. A healthy workflow supported by the right business tools usually signals disciplined management, compliance with requirements, and a transparent reporting structure.

Customer care and support systems

Good customer support reflects how well technology serves end users. Reviewers assess escalation procedures, feedback management, and integration between support and engineering teams. A responsive customer-focused mindset shows operational maturity and a clear management process delineating between functions.

Cybersecurity and data protection

Data security is a central theme in any comprehensive technical review, especially in Canada under PIPEDA. The due diligence team evaluates access control, encryption standards, incident response readiness, and compliance with privacy laws. A robust management approach to security design protects both users and investors from data breaches and regulatory penalties.

Portfolio investment balance

This area examines how resources are distributed across technology initiatives. Analysts review whether the company maintains a healthy portfolio investment balance between innovation and maintenance. Balanced spending supports long-term sustainability and signals a thoughtful management process and governance.

Spin-off or transition scenarios

When the deal involves restructuring or a spin-off, technical readiness becomes crucial. The review covers licensing, hosting, and contractual agreements to ensure deployment independence and smooth system separation. A comprehensive technical plan prevents compliance gaps and keeps the due diligence report consistent with integration goals.

Technology due diligence in Canadian M&A

Technology due diligence in Canada comes with its own set of compliance and operational realities. Beyond reviewing the technical aspects of a company, buyers and investors must ensure that the target’s data management, infrastructure, and intellectual property align with Canadian laws and industry standards.

Here are the main legal requirements and certifications that should be considered in Canadian technology due diligence:

• PIPEDA (Personal Information Protection and Electronic Documents Act). This is Canada’s main federal privacy law that regulates how organizations handle personal data. During due diligence, companies must verify that all systems, databases, and vendors follow PIPEDA principles for data collection, storage, and consent management.
• Québec Law 25 (formerly Bill 64). This provincial law strengthens privacy protections in Québec, requiring mandatory privacy impact assessments and strict data breach notifications. If the target company operates in or serves Québec residents, compliance with Law 25 must be reviewed carefully.
• Competition Act. Overseen by the Competition Bureau of Canada, this act ensures fair competition and prevents anti-competitive practices. M&A transactions involving technology or intellectual property may require notification or review under this act, especially in large or cross-sector deals.
• Investment Canada Act. Foreign buyers acquiring a Canadian tech company may need to undergo an Investment Canada Act review. The goal is to assess whether the transaction provides a “net benefit” to Canada and does not raise national security concerns, particularly in data-sensitive sectors.
• Canadian Intellectual Property Office (CIPO). The due diligence team should verify all registered patents, trademarks, and copyrights with CIPO. Clear IP ownership verification ensures that the buyer acquires full rights to the target’s technology without future disputes.
• Open-source license compliance. Many Canadian software companies use open-source components. Reviewers must confirm that the company complies with license terms and has no unapproved dependencies that could expose the buyer to legal risks or limit commercialization.
• Data residency and cross-border data transfer requirements. Some industries and provinces require that personal data remain within Canada. A cloud infrastructure assessment helps determine where data is hosted and whether data privacy compliance measures meet Canadian expectations for residency and transfer controls.
• ISO 27001 certification. A widely recognized international standard for information security management. If the target company holds or seeks this certification, it demonstrates a mature cybersecurity posture and an effective management approach to security design.
• SOC 2 Type II compliance. Common among SaaS and cloud service providers, this audit verifies controls for security, availability, confidentiality, and privacy. Reviewing SOC 2 reports offers an in-depth analysis of how the company safeguards sensitive client and system data.
• PCI DSS (Payment Card Industry Data Security Standard). If the company handles credit-card transactions or processes online payments, compliance with PCI DSS is mandatory. The review should confirm secure storage, encryption, and transmission of payment data.
• NIST Cybersecurity Framework alignment. While not required by law, many Canadian organizations follow the NIST framework to assess and improve their security controls. Its use shows a proactive approach to risk management and ongoing continuous improvement in release planning in cybersecurity.

How to run tech due diligence

A well-structured technology due diligence process typically takes four to eight weeks, depending on deal size and complexity. 

Here’s an example of how that roadmap can be organized:

• Week 1: Define scope and responsibilities. Start by outlining the scope of work, setting objectives, and identifying who’s responsible for each review area — from IT infrastructure to cybersecurity. Many buyers engage tech consulting specialists at this stage to refine priorities and build a checklist tailored to the deal. This phase also includes preparing an information request list and confirming timelines with the seller.
• Week 2: Secure access and documentation setup. Once the scope is agreed upon, the seller grants controlled access to technical and operational materials through a virtual data room. This includes architecture diagrams, security policies, and system inventories. Staged access keeps sensitive materials protected while enabling the diligence team to work efficiently.
• Weeks 3–4: Subject-matter expert (SME) interviews. Next comes direct interaction with the target’s technology and management teams. Reviewers conduct interviews with system architects, cybersecurity leads, and product owners to clarify how systems operate and identify dependencies or risks. These sessions often reveal more about day-to-day realities than documentation alone.
• Weeks 4–6: Analysis and risk identification. At this stage, the due diligence team reviews all materials and interview findings to spot weaknesses, technical debt, or compliance gaps. The analysis covers scalability, maintainability, data privacy, and security posture. Interim findings are summarized in short reports to keep both sides aligned.
• Weeks 6–7: Red-flag review and validation. Critical issues, such as missing licenses, outdated infrastructure, or security exposures, are discussed in a red-flag meeting. The team prioritizes which risks require immediate attention and which can be mitigated post-acquisition. This collaborative step helps avoid surprises later in integration.
• Week 8: Final report and closing actions. The final diligence report summarizes findings, risk levels, and recommendations. It outlines remediation steps, estimated costs, and any closing actions to include in the deal agreement. Both buyer and seller confirm next steps before transitioning to integration planning.

Benefits of technology due diligence (for buyers and sellers)

Now, let’s take a look at how exactly well-performed tech due diligence can benefit both the buyer and the seller. 

• For buyers, technology due diligence gives a clear picture of what they’re acquiring. It helps identify hidden risks such as outdated infrastructure or security gaps before they become costly problems. Buyers also gain a deeper understanding of how scalable and maintainable the technology is, ensuring it fits their long-term business goals and integration plans. In short, it’s a way to make informed decisions and avoid post-deal surprises.
• For sellers, preparing for technology due diligence builds trust and increases deal value. A clean, well-documented technology environment signals operational maturity and transparency. It allows sellers to demonstrate the strength of their systems, processes, and data governance, which can speed up negotiations and reduce buyer skepticism. Proactive preparation also gives sellers time to fix issues before disclosure, which can turn potential weaknesses into opportunities.

Tools that support technical due diligence

Running a technical due diligence process efficiently requires the right set of digital tools.

Here are some examples of digital use that deal teams might use during tech review:

• Project management tools. Platforms like Jira, Asana, or Monday help coordinate tasks, track progress, and ensure accountability across different reviewers and subject-matter experts.
• Documentation and knowledge tools. Systems such as Confluence, Notion, or Google Workspace allow teams to organize findings, share insights, and centralize information from multiple sources.
• Security and compliance scanners. Automated tools can assess vulnerabilities, check open-source components, and verify compliance with standards like SOC 2 or ISO 27001.
• Cloud monitoring and analytics tools. Services like AWS CloudWatch, Azure Monitor, or Datadog help evaluate infrastructure performance, uptime, and configuration issues.
• Communication platforms. Slack and Microsoft Teams keep all deal-related communication organized, with dedicated channels for each diligence stream.
• Tech consulting reports. Independent assessments from specialized firms can provide unbiased verification of infrastructure health, code quality, and cybersecurity controls.
• Virtual data rooms (VDRs). Finally, a secure due diligence virtual data room acts as the central hub for document exchange, access control, and version tracking. It ensures sensitive information stays protected while giving buyers, sellers, and advisors structured, staged access to everything they need during due diligence.

How can a virtual data room help with tech due diligence?

A secure virtual data room combines all of the main digital tools in one. It provides a secure cloud space for sensitive document sharing where teams can effectively collaborate with each other.

Here’s what a virtual data room brings to the tech due diligence process:

• Regulatory compliance. Ensures all shared information meets Canadian privacy standards, including PIPEDA and Québec’s Law 25.
• Centralized document management. Keeps technical, legal, and operational files, such as code samples, architecture diagrams, and IP documentation, in one secure location.
• Controlled access. Provides staged permissions, so only authorized users can view or download files, with full audit trails of all activity.
• Collaboration efficiency. Allows buyers, sellers, and advisors to work in parallel without version conflicts or email risks.
• Security and encryption. Protects confidential assets through two-factor authentication, watermarks, granular access controls, redaction, and much more.
• Transparency and accountability. Logs every action, helping both sides demonstrate good governance and data handling practices during due diligence.

When looking for a reliable virtual data room provider, you should consider not only its functionality but its cost as well. Data room pricing in Canada typically depends on the number of users, storage volume, deal duration, and feature set. Some vendors charge per page or per document, while others offer flat-rate or subscription-based plans, the latter often being more cost-effective for multi-week M&A reviews.

Key takeaways

• Technology due diligence helps buyers uncover risks in software, infrastructure, data, and IP before completing an M&A deal.
• In Canada, due diligence must account for local regulations such as PIPEDA, Québec Law 25, and data residency rules.
• A structured checklist streamlines the review process, covering areas like software quality, cybersecurity, infrastructure, and management practices.
• The full process typically takes four to eight weeks and includes scoping, document review, SME interviews, and red-flag validation.
• Well-performed tech due diligence benefits both sides — helping buyers make informed decisions and sellers increase deal confidence.
• Using the right digital tools, especially a secure virtual data room, ensures safe document exchange, transparent collaboration, and regulatory compliance.

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