Red flags in computer software: The benefits of a code quality review

Posted on Oct 2017

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Private equity firms invest significant amounts into software companies and businesses that are underpinned by a proprietary technology platform. Recognising that software quality impacts value, investors are increasingly mindful of getting closer to the code during the due diligence process.  But how can a code review provide deeper insight into code quality and maintainability? And therefore how can it make a meaningful contribution to the value creation plan?

Intuitus has undertaken due diligence on 170 software companies and a further 53 tech-enabled companies in the last five years. We have always evaluated the fitness for purpose of the software development environment, one component of a scope of work that also considers the product and technology strategy, the operational environment, the calibre of the team etc. We also have a partnership with The OSQR Group, a code inspection specialist that both influences and applies international standards for software quality, to deliver code quality reviews as part of our broader technology due diligence service.

The success of a technology or tech-enabled business is reliant on the quality of its software. An investor needs to be confident that the investee can evolve and adapt to remain differentiated and competitive, that the software can scale in support of the growth plan and that the programming team can make changes to the code quickly and easily. Without proper maintenance, it is inevitable that code quality will decay over time. Investing in a business without understanding what updates (if any) have been made to the software up to this point puts the investor in a position of risk.

Badly-written or poorly maintained software may work today but it will be more difficult and more costly to adapt and scale in the future.

Code quality reviews as part of due diligence

Our code quality review addresses the question of code maintainability and produces objective, quantifiable evidence that is based on internationally-recognised ISO standards. The findings, which are described within a commercial context in Intuitus’ broader due diligence report, address the following elements:

  • The extent (if any) of technical debt (the cost of fixing structural issues within the code when trying to enhance or adapt software)
  • The build quality of the software product(s)
  • The amount of effort that has gone into building the product(s)
  • The robustness of the code
  • The testability of the code
  • The ease with which the code can be read and modified
  • The extent of any duplication
  • The consistency of the code development
  • The applied skill (and productivity) of the software engineers

Benefits for the private equity investor

A software code review will provide insight into the technical debt of an organisation’s software, and the findings will be used to influence how an investor proceeds with the transaction.

Software is a major asset that will need to be protected and improved throughout the investment lifecycle and in turn boost the value of the organisation. Intuitus’ report can be used to help management improve a company’s software, as well as enhancing software production processes to ensure that these are on a line of continuous improvement and value creation.

By analysing the scalability, resilience, security and performance of the software, a code quality review provides information and analysis that can be used to determine how much future investment will be required by a company’s software, which ultimately impacts whether the investor decides to proceed with the transaction.

By engaging Intuitus to undertake technology due diligence and a code quality review, the investor benefits from a broad and joined-up assessment of a software company and technology platform that would be hard to achieve if each component was commissioned from separate parties.

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