PE Fund Standardises Diligence, 12 Deals

This software M&A case study shows how a private equity fund standardised diligence across 12 deals, replacing ad hoc software reviews with one repeatable method that surfaced quantified exposure in nine of the twelve targets it assessed.

The situation

The composite is a mid market private equity fund running a buy and build strategy in business software and tech enabled services. Across an 18 month window the fund had a dozen targets in various stages. Software diligence, when it happened at all, was inconsistent. Some deals got a light contract review, others nothing. The fund had no common scorecard, so it could not compare licensing risk across targets or carry findings into the value creation plan after close.

A timeline showing intake, a standard data request, a scored exposure assessment and a value creation handover applied identically across twelve deals.

The exposure we found

Applied consistently, the scorecard found exposure the fund had previously been pricing at zero. Nine of the twelve targets carried a quantifiable licensing or audit risk. The most common was Oracle Database deployed beyond entitlement, followed by Microsoft estate sprawl and two cases of indirect access through integrated applications. In aggregate the identified exposure across the portfolio reached into eight figures, none of which had appeared in a financial model.

Standardised exposure findings across twelve targets
Risk category	Targets affected	Typical driver	Where it landed
Deployment above entitlement	5 of 12	Oracle and Microsoft	Priced into deal or W&I
Indirect or digital access	2 of 12	Integrated front end apps	Quantified, monitored
Change of control exposure	3 of 12	Assignment and consent clauses	Flagged to counsel
Clean, no material risk	3 of 12	Well managed estate	No action

Our approach

We built the fund a single diligence playbook. One standard data request issued at intake, one scoring framework that rated each target on deployment, contract and audit risk, and one output template that fed straight into the value creation plan. The scorecard was deliberately fast, designed to fit the three to four week diligence windows the fund worked to, while still producing a defensible exposure number for the investment committee.

A bar comparison showing software diligence coverage rising from a minority of deals to all twelve once a standard method was adopted.

The outcome

The fund moved from covering a third of its deals to covering all of them, on a consistent method. On the nine targets where exposure was found, the fund priced it into the deal, shifted it into warranty and indemnity, or built remediation into the first hundred day plan. The investment committee gained a single comparable risk rating across the pipeline, and the operating partners inherited a clean handover instead of a surprise.

Key takeaways

Inconsistent diligence means the fund prices software risk at zero on the deals it skips, which is rarely correct.
A standard scorecard makes licensing risk comparable across targets and feeds straight into the value creation plan.
Across this portfolio, nine of twelve targets carried quantifiable exposure that financial diligence had not captured.
A fast, repeatable method fits a three to four week diligence window without sacrificing a defensible number.

Recommendations for buyers

Standardise the data request. One intake ask issued on every deal removes the gaps that ad hoc reviews leave.
Score on one scale. Rate deployment, contract and audit risk identically so the committee can compare targets.
Feed the value creation plan. Diligence findings should hand over directly to the operating partners, not get lost at close.
Cover every deal. The deals you skip are the ones where a missed exposure becomes your cost to cure.

Lessons for buyers

The lesson for buyers running a portfolio is that software risk compounds when diligence is inconsistent. Each skipped review is an unpriced liability waiting for a vendor audit. Standardising the method does not just protect individual deals. It gives the fund a portfolio wide view of where licensing risk sits and lets capital decisions account for it.

This is the core of our private equity portfolio advisory service. See the method in the software due diligence service and read a related software diligence repricing case study.

Frequently asked questions

Why standardise software diligence across a portfolio?

Standardising means every target is assessed on the same scale, so the fund can compare licensing risk, avoid pricing skipped deals at zero, and hand clean findings to the operating partners. In this composite it lifted coverage from a third of deals to all of them.

How long does a standardised software diligence review take?

The scorecard in this composite was built to fit a three to four week diligence window. A focused review of the highest risk publishers can produce a defensible exposure number inside that window without slowing the deal.

What did the standard diligence find most often?

The most common findings were deployment above entitlement on Oracle and Microsoft, indirect access through integrated applications, and change of control exposure in assignment and consent clauses. Nine of twelve targets carried quantifiable risk.

Is this commercial advice or legal advice?

This is commercial and licensing advisory. We quantify exposure and rate risk. Where a contract clause needs interpretation, we recommend you engage your own counsel.

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