1. Why Engineering Affects Valuation
Acquirers are buying three things:
- Revenue/customers: What the company has achieved financially.
- Team: The people who built it and will continue building.
- Technology: The systems, code, and architecture that power the product.
Engineering quality affects all three. Bad code means more work post-acquisition. A weak team means higher replacement costs. Technical debt means delayed roadmap.
The integration cost equation
Acquirers discount valuations by their estimated integration cost. Better engineering = lower integration cost = higher valuation.
2. What Acquirers Actually Evaluate
During technical due diligence, acquirers assess:
Architecture & Scalability
Can the system handle 10x growth? Is the architecture modern and maintainable? How much work to integrate with acquirer's systems?
Code Quality
Is the codebase understandable? What's the test coverage? How much technical debt exists?
Security & Compliance
Any vulnerabilities? Is the system compliant (SOC 2, HIPAA, GDPR)? Any security incidents in history?
Team & Knowledge
How dependent is the system on specific people? Is knowledge documented or in someone's head?
Infrastructure
Cloud provider lock-in? Monthly infrastructure costs? Disaster recovery capabilities?
3. Engineering Deal-Breakers
Issues that can kill deals or dramatically reduce valuation:
🚨 Security vulnerabilities
Undisclosed breaches, critical vulnerabilities, or poor security practices can reduce valuation by 20-40% or kill the deal entirely.
🚨 IP/licensing issues
Unlicensed code, unclear IP ownership, or third-party claims create legal liability that acquirers won't accept.
🚨 Single point of failure
If one engineer holds all the knowledge and they leave, the entire value proposition collapses.
🚨 Massive technical debt
If the system needs a complete rewrite, acquirers will value it as acqui-hire (team only), not as a product acquisition.
4. Value Multipliers
Engineering factors that increase valuation:
✓ Modern, documented architecture
Clear system diagrams, ADRs, and documentation that a new team can understand in days, not months.
✓ Compliant and audited
SOC 2 Type II, recent penetration tests, clean security track record. Reduces acquirer risk.
✓ Strong, retained team
Multiple engineers who understand the system. Low attrition. Clear succession plan.
✓ API-first design
Easy integration with acquirer's systems. Documented APIs. Low coupling.
✓ Proven scale
Evidence of handling traffic spikes, high availability, and growth without major rewrites.
5. Real Examples from Acquisitions
Patterns we've observed in real acquisition processes:
Rupa Health → Fullscript
Healthcare compliance (HIPAA) was non-negotiable. Having clean compliance documentation and security practices accelerated due diligence. API integrations with lab partners demonstrated enterprise-readiness.
Read the full story →OddsJam → Gambling.com
Real-time data processing capabilities were the technical differentiator. Acquirer valued the architecture's ability to handle high-volume, low-latency workloads—essential for their business model.
Read the full story →EatCookJoy Recovery
After a cyberattack, the team's ability to rebuild quickly and stronger demonstrated engineering resilience. Good security practices post-attack preserved future acquisition optionality.
Read the recovery story →6. Preparing for Valuation
Start 12-18 months before you expect to raise or sell:
- Document everything: Architecture, decisions, processes. If it's in someone's head, it doesn't exist to acquirers.
- Fix security issues: Get a pentest. Address findings. Build a track record of security.
- Reduce key person risk: Cross-train. Document. Ensure no single point of failure.
- Clean up technical debt: Not all of it, but the stuff that will scare acquirers. Prioritize visible issues.
- Build compliance: SOC 2 takes 6-12 months. Start early. It's table stakes for enterprise acquirers.
The meta-lesson
The best acquisition preparation is building a great engineering culture from day one. Companies that need to "clean up for acquisition" often get caught.