Fiduciary First: Why Tech Diligence Is the New Value Creation Playbook

I’ve said it before: good tech diligence is the bridge between investment thesis and operational reality. At its core, that’s a fiduciary statement because the obligation to get this right runs directly to the investors who trusted you with their capital. In a market that has moved on from financial engineering-centricity, the funds building durable returns are the ones who cross that diligence bridge before close, not after.

The shift to a value creation era

For much of the last decade, private equity returns were structurally underwritten by cheap debt, multiple expansion, and a seller’s market that rewarded boldness as much as rigor. But, things are changing.

For example, in a typical 2015 buyout, a deal required just 5% annual EBITDA growth to generate a 2.5x return over five years¹. Today, with borrowing costs in the 8%–9% range and leverage ratios compressed to 30%–40%, that same benchmark return requires 10%–12% average annual EBITDA growth. One consultancy has coined a shorthand for this new reality: “12 is the new 5.”

6.6 yrs Average PE holding period in 2025 — above the 6.1-year average of the prior decade2

52% Of buyout-backed portfolio companies held for 4+ years in 2025 — the highest on record3

~47% Of the last decade’s buyout returns attributable to multiple expansion4

Exit timelines have stretched, distributions have slowed, and LPs are demanding returns that can’t be manufactured through leverage alone. What’s nipping at the heels of financial engineering is operations, and the technology infrastructure that either enables or constrains them.

The funds generating alpha today are getting it from knowing exactly what they’re buying,and having a value creation plan for it.

Tech diligence is no longer just risk mitigation

Many deal teams think tech diligence is for finding landmines, assessing liabilities, and negotiating a price adjustment if something surfaces. Not wrong, but definitely incomplete and totally insufficient for a market that demands operational value creation at scale.

The best funds have reoriented tech diligence from a checklist into an intelligence-gathering operation. Winning firms⁵ now pursue what is called “full potential due diligence.” That entails a holistic, multidisciplinary effort that goes beyond a viable deal case to identify the revenue, operational, and technology levers that will produce a genuine change in performance.

In our experience working across early-to-lower-middle-market deals, that proactive approach surfaces things a purely cursory review would miss:

• Scalability gaps that represent margin expansion potential once remediated
• Automation opportunities the management team hasn’t scoped or priced
• Hidden technical debt that, restructured properly, converts from a liability into a negotiating point and a post-close workstream 

In other words, what seem like risks to be managed or mitigated should really be seen as value-creation possibilities waiting to be validated.

• Identify scalability constraints that may signal margin expansion potential
• Surface automation opportunities that management may not have identified or priced
• Map hidden technical debt to specific EBITDA impact
• Validate (or not) tech assumptions in the investment thesis

The cost of getting tech due diligence wrong post-close

The critical role tech diligence plays should never be underestimated. The data on what happens when it’s skipped is unambiguous.

Research found that more than 60% of executives cite poor due diligence as the primary driver of deal failure⁶. Other reports show that only 24% of acquirers had more than three of five critical value-creation plan elements actually in place at close,⁷ meaning the majority walked into execution without the infrastructure to actually execute. And companies that delay integration planning are more than twice as likely to experience cost overruns.

The technology layer is where this plays out most visibly. Research compiled from Gartner, McKinsey, and other major sources finds that 84% of IT integrations fail or experience significant issues post-close. Gartner’s own data on data migration — a routine component of any integration — puts the failure or significant overrun rate at 83%. EY’s analysis of 229 deals found that for mid-market transactions under $500M, integration costs average 14% of deal value. These aren’t tail risks. They are the median outcome when tech is assessed late or lightly.

In our experience, failures happen in ways that are entirely predictable pre-close, making them entirely avoidable with proper diligence:

Integration delays Undiscovered system incompatibilities halt integration plans that were built into the thesis, extending hold periods.	Platform rebuilds What’s represented as “scalable infrastructure” requires a ground-up rebuild, an expensive surprise that usually surfaces within 120 days.
Talent churn Key engineers who were never properly assessed or retained leave in the transition window, taking away institutional knowledge and delivery capacity.	Lost EBITDA Every delayed workstream in the first 100 days is lost EBITDA at exit. That’s a harsh reality in a “12 is the new 5” environment.

These are predictable outcomes, not improbable outliers. The cost of rigorous pre-close diligence is a fraction of any one of these post-close surprises.

For funds that take their fiduciary obligations seriously, tech diligence is where value creation begins.

What good tech diligence actually looks like

Good tech diligence is a multi-dimensional assessment that spans product, architecture, people, process, security, AI, and IT. Done right, it answers a question that the other diligence streams cannot: “does this company’s technology actually support the business we are trying to build, at the scale we are projecting, on the timeline we have committed to LPs and without unpleasant surprises”?

Those key areas of tech diligence, in detail, are:

Product Development Process & Engineering Team Assessment

How does the company develop and release software? Who are the key-person risks? What is the bench depth? Can this team execute the post-close roadmap, or does it need reinforcement before Day 1?

Architecture Review

Is the system genuinely scalable, or held together by workarounds? What are the failure modes at 2x or 10x current load? Does the codebase carry technical debt that will constrain growth, or is it a foundation you can build on?

Process

Well-defined, repeatable development and operational processes are a multiplier — they’re what allows a good team to scale without breaking. The diligence goal is to understand how work actually gets done, where institutional knowledge lives, and whether the processes in place can support a larger, faster organization post-close. Documented, transferable process is an asset. The absence of it is a roadmap for what to fix first.

IT Infrastructure

A solid IT foundation, i.e., the right systems, services, and vendors, is what allows a business to grow without having to rebuild constantly. The assessment here is about scalability and fit: are the tools and infrastructure in place ones that will serve the business at two or three times its current size, and do vendor relationships support rather than constrain that growth?

Security Posture

A clear security posture, including SOC 2 status, access controls, a clean incident history, is both a liability check and a signal of operational maturity. Understanding where the company stands before close means you’re not discovering exposure at the worst possible moment.

AI

Because AI is increasingly viewed as a value creation lever, the diligence goal is to understand what’s genuinely embedded in the product: proprietary capability that’s difficult to replicate and represents real IP, or off-the-shelf capability that competitors can match easily. Equally important is identifying where the company could be leveraging AI and isn’t yet, because that gap is often one of the clearest post-close value creation opportunities available.

The question isn’t just whether the technology works today. It’s whether it can support the business you’re trying to build — at the scale you’re projecting, on the timeline you’ve committed to LPs.

The rise of flexible, external expertise

You don’t need a 20-person in-house operating team to run rigorous tech diligence. A) It’s not economical, and B) it’s unnecessary.

The cost of operating a PE firm has risen substantially as demands for specialization have grown while revenues remain under pressure from LP fee sensitivity and fundraising continues to tilt toward the larger funds. For smaller and mid-market funds, this creates a structural imperative to be selective about where permanent operating capability lives and where it should be outsourced on demand.

The fractional leadership model has matured to the point where that on-demand option is now genuinely enterprise-grade. Not to be self-serving, but from our own experience over two decades, we’ve seen that fractional executive engagements are up to 75% more cost-effective than full-time hires. Obviously, the fractional operating partner model has proven its ability to deliver at deal speed and depth.

For tech diligence specifically, the fractional model solves the problem that in-house teams rarely can: genuine specialist depth, available on short notice, across concurrent deals, without the overhead of a permanent headcount commitment. Our own diligence practice, for instance, is built to spin up within days and deliver within two to three weeks without the “deal fatigue” of an overly exhaustive process that creates more friction than valuable insights.

The compounding advantage is continuity. The same fractional team that conducts the pre-close assessment can step directly into post-close execution in an ongoing fractional capacity, bringing with it the first-hand knowledge of what was found, what was flagged, and what was prioritized.

Connecting diligence findings to the 100-day plan

The most common failure mode in tech due diligence is what happens to the findings once they’re delivered, not necessarily the findings themselves. A rigorous pre-close assessment produces a clear picture. Then, the close happens, the external team disperses, and ninety days later, someone is hunting for the diligence report in a shared folder. That report is not a standalone deliverable, but part of a larger fiduciary effort.

The firms that get this right treat diligence as the first chapter of the value creation story. Architecture findings become infrastructure workstreams. The engineering assessment drives the retention and hiring plan. Data infrastructure gaps become an analytics sprint in month two. Each finding maps to an owner, a budget line, and a milestone. Ideally, the report hits the ground running after close so that the full potential identified can accelerate speed to value.

Pre-close: validated findings

Product, team, architecture, security, IT, process, AI, and thesis alignment were assessed and documented with prioritized, actionable observations.

Day 1–30: workstream activation

Findings converted into owned workstreams with assigned accountability. Critical risks addressed immediately; value-creation opportunities scoped with resource and budget requirements.

Day 31–60: execution and triage

Teams executing against milestones. New discoveries assessed and folded in. Board-level reporting aligned to the original diligence findings, not improvised from scratch.

Day 61–100: baseline established

Infrastructure stabilized. Key talent retained or supplemented. Data visibility in place. Roadmap locked and funded for years two and three of the hold.

This is what it means for tech diligence to be the “bridge.” The findings become the value creation plan.

A call to action for emerging managers

Making money in private equity used to be easier. Cheap debt and rising valuations did a lot of the work. That’s no longer true. Generating the same returns now requires actually improving the businesses you buy. Faster than your competition. 

Meanwhile, the investors who fund PE firms are getting pickier, concentrating their commitments among fewer, larger, proven managers. Smaller and newer funds are competing harder for a shrinking pool of available capital. What hasn’t changed through any of this is the fiduciary obligation at the center of every deal: value creation is a serious responsibility, not just a return strategy. 

For firms willing to invest in capability, that means underwriting deals with greater precision, executing more quickly post-close, and building the operational evidence that LPs increasingly demand before committing to the next fund.

That’s why tech diligence shouldn’t be viewed as a line item or list of checkboxes. It’s not a deliverable that can be approximated with a few management calls. In a value-creation era, it is at the heart of the work. It will tell you whether what you’re buying can support the thesis you’ve committed to, so you can show up to the close with a value creation playbook.

Of course, funds with the deepest pockets will always do well. For everyone else operating in this new reality, knowing exactly what you’re buying — technically, operationally, structurally — is a competitive advantage and worth treating as one.

That bridge between investment thesis and operational reality? It doesn’t build itself. You need tech diligence.

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Key Takeaways

• Tech diligence bridges the gap between an investment thesis and the operational reality of target companies.
• Modern private equity returns depend on operational value creation rather than relying solely on cheap debt.
• Rigorous technical assessments identify scalability gaps and automation opportunities that directly contribute to margin expansion.
• Inadequate technology integration post-close is a primary driver of deal failure and significant cost overruns.
• Fractional executive services provide cost-effective, specialized expertise to conduct deep technical assessments at deal speed.

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Due diligence is a fiduciary act. Treat it like one.

The value creation clock starts before close, and it starts with tech diligence.

Because the funds winning in this environment know exactly what they’re buying 

before they buy it. You should, too. Ask us how.

1, 5: Bain & Company's 2026 Global Private Equity Report

4: Bain & Company Global PE Report 2024

2, 3: McKinsey Global Private Markets Report 2026

6:         Bain's Global Corporate M&A Report

7:         PwC's M&A Integration Survey