Automated Due Diligence: Features & Capabilities

This article is written with acquirers of Lower-Middle-Market (LMM) software companies in mind -- including Private Equity buyers, holding companies, and strategic acquirers.

Automated due diligence is the opposite of what most lower-middle-market acquirers do in their process to evaluate acquisition targets, but acquirers will increasingly look to automation to resolve some of the highest-labor lowest-sophistication portion of the diligence process. This article is for acquirers that are motivated to find the right aspects of diligence to transition to partially automated, along a broader multi-year journey to find additional diligence efficiencies.

Software Company Diligence - Scope

Before discussing what automation may be appropriate and helpful, lets first recap the types of diligence that often occur in lower-middle-market software acquisition mandates. Although there is no uniform taxonomy for diligence, generally it will include at least the following categories:

1. Market & Industry Analysis: Assesses the size, growth, and structure of the target’s market, including competitive landscape, industry trends, and the company’s strategic positioning within it.
2. Go-to-Market (GTM) Effectiveness: Examines the company’s sales and marketing engine—how leads are generated, converted, and retained—to gauge efficiency, scalability, and potential for growth.
3. Product & Technology Diligence: Evaluates the robustness, scalability, and differentiation of the company’s technology stack and product roadmap, including code quality, architecture, and R&D processes.
4. Customer & Revenue Quality: Analyzes the composition, retention, and satisfaction of the customer base to determine revenue durability, concentration risk, and long-term relationship strength.
5. Financial Performance & Quality of Earnings: Validates the accuracy and sustainability of financial results, distinguishing recurring revenue from one-time items, assessing margin structure, and normalizing for adjustments.
6. Unit Economics & KPI Analytics: Dissects key performance metrics such as CAC, LTV, payback periods, and pricing dynamics to understand the profitability and scalability of customer cohorts.
7. Organization & Management: Reviews the leadership team’s depth, organizational design, incentives, and culture to evaluate execution capability and key-person dependency risks.
8. Legal, Compliance & Contract Review: Covers corporate structure, IP ownership, contractual obligations, and regulatory compliance to identify legal risks and confirm proper governance.
9. Systems, Data & Infrastructure: Assesses internal systems, data quality, and security posture to determine whether the operational backbone can support future growth and reporting needs.
10. Value Creation & Integration Planning: Identifies strategic and operational levers for post-close value creation—such as pricing, cost optimization, and tuck-in acquisitions—while evaluating integration readiness.

If you are frequently involved in buy-side diligence of lower-middle-market software companies, you may have your own variant of the above list, but we suspect there is a high degree of overlap between the above framework and your own.

Easy Pickings - Automation First Steps

Although some form of automated due diligence could be helpful in a variety of the subject areas in a diligence taxonomy, we suggest that automated diligence is especially helpful in market-facing diligence. Why?

When evaluating a company's market position, there typically an abundance of publicly-available owned, earned, and paid media. An abundance of SEO and SEM metadata. A chaotic collection of product/service review sites with customer feedback in a variety of formats. A competitive set, some of which the seller may have strategically omitted from data room materials, and others they may have strategically emphasized in data room materials.

The result? A chaotic, almost overwhelming, amount of publicly-available information about the acquisition target and their competitors. We don't doubt that a strong and dedicated group of analysts could make sense of it all, but starting from zero is not the most efficient use of their time.

In the above taxonomy, our picks for the first places to focus on adding some elements of automated due diligence, are:

• Market & Industry Analysis
• Go-to-Market (GTM) Effectiveness

Let's break each of those into automation wish lists, and discuss the current "state of play" around what automation may be practical/possible.

Automated Due Diligence: Market & Industry Analysis

Materials related to market share and industry segmentation have long been available from providers accustomed to working with acquirers of software companies. This may be one of the most long-tenured areas of resource availability. The typical complaint, though, is that industry reports tend to reflect the "state of play" at the time that the report was made -- two quarters ago? One quarter ago? A year ago? That's not unhelpful -- there is a place for that type of intelligence in a diligence process. However, here's where we'd suggest applying automation:

• Realtime Understanding of Product Capabilities: there is no room for aging PDF-style reports when it comes to evaluating quickly-evolving product capabilities across a variety of software company entrants. In the age of software teams leveraging AI agents to speed their software development, a Harvey Balls chart from months or years ago, adds only minimal information value to an effort to discern what differentiation has been competed away versus remains a viable competitive moat. (example)
• Competitor Identification: in most segments, the competitive set has never been more noisy. It takes a higher degree of tenacity than ever, to sift through a competitive set. Between legacy entrants with sub-optimal digital presence, modern entrants that are viable competitors, and hastily-marketed new entrants (some vibe coded, some bona fide entrants that can be expected to endure), the number of entrants in a competitive set may be tremendous. It helps to have automatic detection of additional competitors, a job that is perfect for automation. (example)
• Industry News: highly influenced by strong "Competitor Identification" but also influenced by a need to include Earned, Owned, and Paid media, the spectrum of industry news that may inform an acquirer's understanding of market conditions, has never been broader. (example)

We're glad to give you a headstart on any of these three items, using tools from SuiteCompete that provide some automated due diligence tools that relate to each of the above items.

Automated Due Diligence: Go-to-Market (GTM) Effectiveness

In this part of the diligence taxonomy, the more digital the company's marketing footprint is, the more of a headstart can be gained with smart use of automation. Some areas of common analysis in a software company acquisition, when evaluating their GTM effectiveness, include:

• Compatibility x Competitor Grid: evaluating which competitors do/don't have compatibility or partnership with a list of systems that relate to the key workflows of the company (example)
• Country/Language x Competitor Grid: evaluating which competitors have certain language / country presence. (example)
• Relevant Compliance Materials: think HIPAA for companies that are in bona fide pursuite of healthcare clients; think FedRAMP for companies that are in bona fide pursuit of federal contracts; GDPR for companies pursuing EU-based clients; CCPA for companies pursuing clients in California.

In the first two cases, the Keyword/Competitor grids in SuiteCompete are a great headstart -- leaving you with direct evidence of precisely what each competitor is saying about each (compatibility, language, etc). In the latter case, SuiteCompete can help you quickly scan for "Trust Center" pages across a competitive set (example), putting you hot on the trail to a badge panel of relevant compliance materials (or, the somewhat unsettling lack of such a page in the company's web presence).

More to Come

There are plenty of additional automated due diligence opportunities when diligencing lower-middle-market software company acquisitions, but we'll wrap for now, and continue this series with additional future posts. Stay tuned, and as always, let us know how we can help!