Technical debt is invisible in M&A processes because the seller doesn't know how to measure it and the buyer doesn't ask enough questions. The result: the buyer discovers serious problems only after closing the deal, when they no longer have negotiation leverage.
Why technical debt goes unnoticed
Sellers often don't know the extent of technical debt. The code works, tests pass, the system is running. But beneath the surface, outdated dependencies, coupled architecture, and superficial tests create risk that doesn't show up in dashboards.
Buyers focus on revenue, margin, growth, and churn. They rarely ask about build cycle time, production bug rates, knowledge concentration in one or two people, the age of core dependencies, or documentation quality.
The right questions
Build and deploy time: how long does it take from commit to production? If the answer is days instead of hours, there is significant technical debt.
Bug rate: how many bugs reach production per month? Mature systems have low and stable rates. Rising rates indicate deterioration.
Knowledge concentration: how many people can modify the main system without help? If the answer is fewer than three, turnover risk is high.
Dependency age: when were the core dependencies last updated? Dependencies older than two years without updates represent security and compatibility risk.
Documentation: does updated architecture documentation exist? If the answer is "there's something in Confluence from 2022," documentation doesn't exist.
How to quantify it
Stabilize: estimate the cost to make the system stable (fix vulnerabilities, update dependencies, cover critical tests). Scale: estimate the cost for the system to support projected growth. Risk: estimate the cost if nothing is done (downtime, data loss, breach).
The sum of these three values defines the real technical debt. It is typically between 15% and 40% of the acquisition value for legacy systems.
How to negotiate
Price adjustment: reduce the acquisition value by the estimated debt cost. Post-closing obligations: the seller commits to resolving specific issues within a defined timeframe, with penalties for non-compliance. Escrow: part of the value is held until technical debt is reduced to acceptable levels.
The seller's side
Sellers who anticipate technical debt assessment gain trust and avoid surprises that stall negotiations. A technical audit before putting the company on the market reveals problems that can be resolved before due diligence, increasing perceived value.