What’s on the Closing Checklist When Selling a Tech Company — and What You Might Be Forgetting
After months of diligence, negotiation, and late-night data room uploads, you’re finally approaching the finish line: closing day. But before the wire hits and champagne is uncorked, there’s one more critical hurdle — the closing checklist.
For founders selling a software or tech company, the closing checklist is more than a formality. It’s a comprehensive, often legally binding list of deliverables, signatures, and confirmations that must be completed before the transaction can close. Miss a key item, and you risk delaying — or even derailing — the deal.
This article outlines what’s typically included in a closing checklist for a tech M&A transaction, and highlights a few often-overlooked steps that can make or break a smooth exit.
What Is a Closing Checklist?
A closing checklist is a detailed document, usually prepared by legal counsel, that itemizes all the documents, approvals, and actions required to consummate the sale. It’s used by both buyer and seller to track progress and ensure nothing falls through the cracks.
Think of it as the final project plan for your exit — a shared roadmap that coordinates legal, financial, and operational workstreams in the final days or weeks before closing.
Key Components of a Tech M&A Closing Checklist
While every deal is unique, most closing checklists for software and technology companies include the following categories:
1. Final Transaction Documents
Purchase Agreement: The definitive agreement (asset or stock sale) outlining terms, reps and warranties, indemnities, and covenants.
Disclosure Schedules: Attachments to the purchase agreement that qualify or expand on representations — often the most time-consuming to finalize.
Ancillary Agreements: These may include IP assignments, employment or consulting agreements, escrow agreements, and non-compete clauses.
2. Board and Shareholder Approvals
Board resolutions authorizing the sale
Shareholder consents (especially critical in stock sales or when drag-along rights are triggered)
Waivers of rights of first refusal or co-sale rights, if applicable
3. Regulatory and Compliance Filings
State-level filings for entity dissolution or name changes
U.S. antitrust filings (e.g., HSR Act) if thresholds are met
Foreign investment approvals for cross-border deals
4. Financial and Tax Deliverables
Final working capital calculation and true-up mechanism
Payoff letters for outstanding debt or credit lines
Tax clearance certificates or Form 8594 (for asset sales)
Assignment of patents, trademarks, and domain names
Transfer of source code repositories and documentation
Third-party software license consents
6. Employee and HR Matters
Offer letters or transition agreements for key employees
Termination of stock option plans or conversion to buyer equity
COBRA notices and benefits plan transitions
7. Customer and Vendor Notifications
Consent to assign material contracts (especially in SaaS businesses)
Notices to strategic partners or resellers
Updated billing and payment instructions
Commonly Overlooked Final Steps
Even experienced founders can miss critical items in the final stretch. Here are a few areas where deals often stumble — and how to stay ahead of them:
1. Working Capital Peg and Adjustments
Many founders underestimate the complexity of the working capital adjustment. Buyers want to ensure the business is delivered with a “normal” level of working capital — not drained of cash or overloaded with payables. Misalignment here can lead to post-closing disputes or escrow claims. A seasoned M&A advisor like iMerge can help model and negotiate a fair peg based on historical trends.
2. Customer Consent Bottlenecks
If your SaaS contracts include anti-assignment clauses, you may need customer consent to transfer them. This can be a sensitive process — especially if the buyer is a competitor or if customers are risk-averse. Start early, and consider how to frame the transition to preserve trust. For more on this, see How Do I Handle Customer Contracts During the Sale of My Software Business?
3. Final Cap Table Reconciliation
Before closing, you’ll need to finalize the cap table — including option exercises, warrant conversions, and any SAFE or convertible note conversions. Errors here can delay payouts or trigger legal exposure. Ensure your legal and finance teams are aligned on the final ownership structure and payout waterfall.
4. Closing Binder Assembly
After the deal closes, you’ll want a complete record of all signed documents, approvals, and correspondence. This is typically compiled into a “closing binder” — a digital or physical archive that can be invaluable for tax, legal, or audit purposes. For a deeper dive, see What Typically Goes Into a Closing Binder for a Startup Acquisition.
Final Thoughts: Don’t Let the Finish Line Trip You Up
Closing a tech M&A deal is a high-stakes, high-detail process. Even after the headline terms are agreed, the final 5% of execution can consume 50% of your time and energy. That’s why experienced founders often lean on M&A advisors not just for valuation and negotiation, but for operational execution in the final mile.
Firms like iMerge specialize in helping software and technology companies navigate these complexities — from working capital modeling to customer consent strategies to post-closing integration planning. A well-managed closing process doesn’t just protect value — it preserves relationships, reputations, and momentum for what comes next.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
How Much Should Founders Disclose to Their Team About a Sale Windfall?
For many founders, the sale of a company is the culmination of years—sometimes decades—of risk, sacrifice, and relentless execution. But when the deal is finally in motion, a new and often unexpected question arises: How much should I tell my team about what I personally stand to gain?
This is not just a matter of etiquette or transparency. It’s a strategic decision that can impact morale, retention, and even the final stages of deal execution. In this article, we’ll explore how to approach this sensitive topic, what to disclose (and when), and how to align your messaging with the broader goals of the transaction.
Why This Question Matters More Than You Think
In the software and technology sectors, where equity compensation is common and teams are often lean but high-performing, the optics of a founder’s exit windfall can be powerful. Handled well, it can reinforce a culture of success and inspire loyalty. Mishandled, it can breed resentment or attrition—especially if employees feel left out of the upside.
At iMerge, we’ve advised founders through hundreds of exits, and we’ve seen firsthand how disclosure decisions can shape the post-deal landscape. The right approach depends on your cap table, your company culture, and the structure of the deal itself.
What to Consider Before Disclosing
1. Understand the Cap Table Dynamics
Before you say anything, make sure you have a clear understanding of who owns what. In many software companies, the cap table includes a mix of founders, early employees, investors, and option holders. If your team has equity or options, they’ll likely be doing their own math once the deal is announced.
In some cases, employees may already have a general sense of your ownership stake. But unless you’ve been unusually transparent, they probably don’t know the full picture—including liquidation preferences, earn-outs, or tax implications. That’s why it’s important to separate perception from reality when planning your communication strategy.
2. Timing Is Everything
Disclosing too early can create unnecessary distraction or anxiety—especially if the deal is still in flux. Disclosing too late can feel evasive or disingenuous. A good rule of thumb is to wait until the deal is signed (or at least the LOI is firm and diligence is underway) before sharing any specifics.
As we noted in Completing Due Diligence Before the LOI, the period between LOI and close is often the most sensitive. During this time, it’s best to keep communications focused on operational continuity and team stability. Save personal financial disclosures for after the deal is closed—or at least irrevocably committed.
3. Consider the Cultural Context
Some startup cultures are built on radical transparency. Others are more hierarchical or compartmentalized. If your team is used to open-book management and regular updates on company performance, a sudden veil of secrecy around the exit may feel jarring. Conversely, if you’ve historically kept financial matters close to the vest, a detailed breakdown of your personal payout may feel out of place.
There’s no one-size-fits-all answer here. But in general, it’s wise to frame your disclosure in terms of the company’s success—not your personal gain. For example:
“This outcome reflects the value we’ve all created together. I’ve been fortunate to have a meaningful stake in the company, and I’m incredibly grateful for the team that made this possible.”
What You Might Choose to Share
Here are a few disclosure strategies we’ve seen founders use effectively, depending on the situation:
High-Level Context Only: “The deal represents a strong multiple on our last valuation, and everyone with equity will benefit.”
Equity Pool Transparency: “The employee option pool will receive $X in aggregate, and we’ll be working with HR to ensure everyone understands their individual outcomes.”
Personal Gratitude Without Numbers: “This has been a life-changing outcome for me personally, and I want to thank you all for being part of the journey.”
Full Transparency (Rare): “As the majority shareholder, I’ll be receiving $X from the transaction. I’m sharing this because I believe in transparency and want to celebrate this milestone with you.”
Most founders opt for something between the first and third options. Full transparency is rare and should only be considered if it aligns with your company’s values and you’re confident it won’t create unintended consequences.
What to Avoid
While every situation is unique, there are a few common pitfalls to steer clear of:
Overpromising: Don’t imply that everyone will be “taken care of” unless you’ve run the numbers and confirmed it.
Defensiveness: Avoid justifying your payout or comparing it to others. Let the numbers speak for themselves, if you choose to share them at all.
Premature Disclosure: Until the deal is signed and funded, anything can change. Avoid creating expectations that may not materialize.
Aligning Incentives Before the Exit
If you’re still in the planning stages of a sale, now is the time to think about how your team will participate in the upside. Structuring retention bonuses, option acceleration, or carve-outs for key employees can go a long way in aligning interests and smoothing the path to close.
As we discussed in Exit Business Planning Strategy, proactive planning around team incentives can increase deal certainty and reduce post-close disruption. Firms like iMerge often help founders model these scenarios to ensure the exit is not only financially successful but culturally sustainable.
Final Thoughts
Disclosing your personal gain from a company sale is a deeply personal decision—but it’s also a strategic one. The goal is not to hide or boast, but to communicate in a way that reinforces trust, celebrates shared success, and preserves team cohesion during a time of transition.
Ultimately, your team will remember how you made them feel during the exit more than the exact numbers you shared. Lead with gratitude, clarity, and respect—and you’ll set the tone for a successful next chapter, both for yourself and for those who helped build the company alongside you.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
What Approvals Are Required to Sell Your Startup — And How to Secure Them
For many founders, the decision to sell a startup is both strategic and deeply personal. But even if you’re the visionary behind the company, you may not have the unilateral authority to complete a sale. Depending on your corporate structure, investor agreements, and cap table, you may need formal approval from your board of directors, shareholders, or both.
Understanding these governance requirements early in the M&A process is critical. Missteps here can delay — or even derail — a deal. In this article, we’ll break down the typical consents required to sell a startup, how to prepare for them, and what founders should do to align stakeholders before entering serious negotiations.
Why Approvals Matter in a Startup Sale
At its core, selling a company is a transfer of control — and control is governed by your corporate documents. Whether you’re executing an asset sale or a stock sale, the transaction will likely require formal consent from key decision-makers. These approvals are not just legal formalities; they are enforceable rights that protect investors, co-founders, and other stakeholders.
Failing to obtain the necessary consents can result in breach of fiduciary duty, litigation, or a failed closing. Buyers — especially institutional acquirers or private equity firms — will insist on clear evidence that all required approvals have been obtained before wiring funds.
Key Approvals Typically Required
1. Board of Directors Approval
Most startup sales require approval from the board of directors. This is typically a majority vote, but your company’s bylaws or investor agreements may require a supermajority or unanimous consent for major transactions.
The board’s role is to act in the best interest of the company and its shareholders. That includes evaluating the fairness of the deal, the strategic rationale, and any potential conflicts of interest. In many cases, the board will also authorize the CEO or another officer to negotiate and execute the transaction documents.
2. Shareholder Approval
In addition to board consent, many deals require approval from the company’s shareholders — particularly in a stock sale or merger. The threshold for approval depends on your corporate structure and governing documents:
Delaware C-Corp: Under Delaware law, a merger or sale of substantially all assets typically requires approval from a majority of outstanding voting shares.
Preferred Shareholders: If you’ve raised venture capital, your investors likely have protective provisions that give them veto rights over a sale. These may require a separate class vote of preferred shareholders, often with a supermajority threshold (e.g., 66⅔%).
Drag-Along Rights: Some companies include drag-along provisions in their stockholder agreements, allowing a majority of shareholders to force minority holders to approve a sale. These provisions can streamline the process — but only if properly structured and enforceable.
3. Investor Consents and Protective Provisions
Beyond general shareholder votes, your investors may have specific contractual rights that require their consent. These can include:
Right to approve any change of control
Right of first refusal or co-sale rights
Liquidation preference enforcement
These rights are typically found in your company’s Investor Rights Agreement, Voting Agreement, or Certificate of Incorporation. A careful review of these documents is essential before entering into a Letter of Intent (LOI).
How to Line Up Approvals Strategically
Securing approvals is not just a legal exercise — it’s a political and strategic one. Here’s how to approach it:
1. Start with a Cap Table and Governance Review
Before engaging buyers, conduct a thorough review of your cap table, charter documents, and investor agreements. Identify:
Who holds voting control?
What approval thresholds apply?
Which investors have veto rights?
Firms like iMerge often begin engagements with this type of governance audit to avoid surprises later in the process.
2. Engage Key Stakeholders Early
Once you’re seriously considering a sale, begin informal conversations with your board and major investors. Gauge their appetite for an exit, and understand their expectations around valuation, timing, and deal structure.
In our experience advising software founders, early alignment with your board and lead investors can dramatically reduce friction during diligence and closing. It also helps you shape a deal that meets the needs of all parties — not just the founder.
3. Use the LOI as a Catalyst for Formal Approvals
While you don’t need full board or shareholder approval to sign a non-binding LOI, it’s wise to secure at least board-level support before doing so. Once the LOI is signed, you’ll typically seek formal approvals during the definitive agreement phase.
At this stage, your M&A advisor and legal counsel will help prepare board resolutions, shareholder consents, and any required notices. If drag-along rights are in play, you’ll also need to ensure proper execution of joinder agreements or waivers.
4. Anticipate and Address Objections
Not all stakeholders will be aligned. Some may want to hold out for a higher valuation, while others may have concerns about tax treatment or post-sale roles. Address these concerns proactively:
Offer retention packages or earn-outs where appropriate
In some cases, it may be necessary to renegotiate investor rights or offer side agreements to secure consent. This is where experienced M&A advisors can add significant value.
Case Example: Navigating a Complex Cap Table
Consider a hypothetical SaaS company with $10M ARR, backed by two venture funds and several angel investors. The founder receives a $60M acquisition offer from a strategic buyer. The board is supportive, but one VC — holding 25% of preferred shares — is pushing for a higher price.
Upon review, the company’s charter requires 66⅔% of preferred shares to approve a sale. The founder, working with an M&A advisor like iMerge, negotiates a modest earn-out and retention package that aligns the VC’s interests with the buyer’s growth plan. With that, the VC consents, and the deal proceeds to closing.
This scenario underscores the importance of understanding not just who owns what — but what rights they hold and how to align them.
Final Thoughts
Securing board and shareholder approvals is a critical — and often underestimated — part of the M&A process. Founders who prepare early, understand their governance landscape, and engage stakeholders with transparency are far more likely to close successfully and on favorable terms.
Whether you’re exploring a full exit or a partial recapitalization, aligning your board and investors is not just a checkbox — it’s a strategic imperative.
Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.
How to Organize Your Data Room for Due Diligence When Selling a SaaS or AI Company
When a SaaS or AI company enters the M&A process, the data room becomes the nerve center of the transaction. It’s where trust is built—or lost. A well-organized data room not only accelerates due diligence but also signals to buyers that your company is professionally managed and acquisition-ready.
But what exactly should go into the data room? And how should it be structured to meet the expectations of strategic acquirers, private equity firms, or institutional investors?
This article outlines a practical, investor-grade approach to organizing your data room, with a focus on the unique needs of SaaS and AI businesses.
Why the Data Room Matters
In a competitive M&A process, time kills deals. A disorganized or incomplete data room can delay diligence, erode buyer confidence, and even reduce valuation. Conversely, a clean, comprehensive data room allows buyers to move quickly, minimizes surprises, and strengthens your negotiating position.
At iMerge, we’ve seen firsthand how a well-prepared data room can increase deal velocity and reduce post-LOI retrading. It’s not just about checking boxes—it’s about telling a coherent, verifiable story of your business.
Core Principles of Data Room Organization
Logical Structure: Use a clear folder hierarchy that mirrors the buyer’s diligence checklist.
Version Control: Ensure documents are current and labeled with dates or version numbers.
Access Management: Use a secure virtual data room (VDR) with tiered permissions for different buyer teams (e.g., legal, financial, technical).
Redaction Where Necessary: Protect sensitive information (e.g., customer names, source code) until later stages.
Must-Have Documents for SaaS and AI Company Due Diligence
Below is a breakdown of the essential categories and documents that should be included in your data room. This list is tailored to the expectations of buyers evaluating recurring revenue software and AI-driven businesses.
1. Corporate & Legal
Certificate of incorporation and bylaws
Cap table (fully diluted), including SAFEs, options, warrants
Board and shareholder meeting minutes
Equity grant documentation and option plan details
Material contracts (customer, vendor, partnership, NDAs)
Litigation history and legal correspondence
IP assignments and patent filings
For AI companies, it’s especially important to include documentation around AI training data sources and licensing to avoid compliance or IP issues post-acquisition.
2. Financial
Three years of GAAP-compliant financial statements (P&L, balance sheet, cash flow)
Trailing 12-month financials with monthly granularity
Revenue breakdown by product, customer, and geography
Deferred revenue schedules and revenue recognition policies
Budget vs. actuals and financial projections
Quality of earnings (QoE) report, if available
Buyers will scrutinize your revenue quality, especially if you have usage-based or freemium models. As we noted in SaaS Key Performance Metrics and Valuation Multiples, metrics like net revenue retention (NRR) and gross margin are critical to valuation.
3. SaaS Metrics & KPIs
Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) trends
Churn and retention metrics (logo and revenue churn)
Customer acquisition cost (CAC) and lifetime value (LTV)
Customer cohort analysis
Sales pipeline and conversion rates
Rule of 40 analysis
These metrics should be presented in a standardized format, ideally with charts and commentary. Buyers will benchmark your performance against industry norms—see our guide on SaaS Valuation Multiples for context.
4. Product & Technology
Product roadmap and release history
Architecture diagrams and tech stack overview
Source code escrow agreements (if applicable)
Third-party software licenses and open-source usage
Security audits and penetration test results
AI model documentation, training data lineage, and model performance metrics
For AI companies, buyers will want to understand how models are trained, validated, and deployed. Be prepared to answer specific diligence questions about your AI stack, including explainability, bias mitigation, and data governance.
5. Customers & Revenue
Top 20 customer list with contract terms and renewal dates
Employee retention risks and key person dependencies
Key person risk is a common concern in founder-led companies. If you’re planning to exit post-transaction, buyers will want to see a succession plan or leadership bench in place.
7. Tax & Compliance
Federal and state tax returns (3 years)
Sales tax nexus analysis (especially for SaaS)
R&D tax credit documentation
GDPR, CCPA, and other data privacy compliance records
Start Early: Don’t wait for a signed LOI. Begin assembling your data room during pre-market preparation.
Use a Professional VDR: Tools like Firmex, Datasite, or ShareVault offer audit trails, watermarking, and granular permissions.
Tell a Story: Include a management presentation or Confidential Information Memorandum (CIM) to provide context.
Anticipate Buyer Questions: Work with your M&A advisor to simulate diligence Q&A and preemptively address red flags.
Final Thoughts
Organizing your data room is more than a clerical task—it’s a strategic exercise in transparency, positioning, and risk mitigation. For SaaS and AI companies, where intangible assets and recurring revenue models dominate, the quality of your data room can materially impact valuation and deal certainty.
Firms like iMerge specialize in helping founders prepare for this process, from pre-LOI diligence to final closing binders. With the right preparation, your data room becomes a tool of persuasion—not just compliance.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
How to Prepare Your Engineering Team for Technical Due Diligence in a Software M&A Process
In a software M&A transaction, technical due diligence is where the rubber meets the road. It’s the moment when a buyer’s team—often composed of senior engineers, CTOs, or external consultants—dives deep into your codebase, infrastructure, and development practices to validate what’s been promised on paper. For founders and CEOs, this phase can be both high-stakes and highly revealing.
So how do you prepare your engineering team for this level of scrutiny? The answer lies in a combination of technical hygiene, narrative alignment, and strategic readiness. Below, we outline a structured approach to ensure your team is not only prepared but positioned to inspire confidence in the buyer’s technical evaluators.
1. Understand What Buyers Are Really Looking For
Before diving into code cleanup or documentation sprints, it’s important to understand the buyer’s perspective. Technical due diligence is not just about code quality—it’s about risk mitigation and value validation. Buyers are typically assessing:
Codebase quality and maintainability: Is the code modular, well-documented, and scalable?
Architecture and infrastructure: Is the system designed for reliability, performance, and future growth?
Security and compliance: Are there vulnerabilities, data privacy risks, or regulatory gaps?
Team and process maturity: How disciplined is the engineering culture? Are there CI/CD pipelines, version control standards, and testing protocols?
Technical debt and roadmap alignment: What skeletons are in the closet, and how do they impact future development?
Firms like iMerge often advise clients to anticipate these areas early in the exit planning process, ideally 6–12 months before going to market. This allows time to address red flags before they become deal-breakers.
2. Conduct an Internal Technical Audit
Think of this as a pre-diligence dry run. Assemble a small task force—typically your CTO, lead engineers, and possibly an external advisor—to perform a candid assessment of your technical stack. Focus on:
Codebase review: Identify areas of high complexity, outdated dependencies, or lack of test coverage.
Architecture documentation: Ensure you have up-to-date diagrams and explanations of system components, data flows, and integrations.
Security posture: Review access controls, encryption practices, and any past incidents or penetration test results.
DevOps and deployment: Document your CI/CD pipeline, rollback procedures, and uptime metrics.
This internal audit not only surfaces issues but also helps your team practice articulating the “why” behind technical decisions—something buyers will probe during diligence calls.
3. Align the Engineering Narrative with the Business Story
One of the most overlooked aspects of technical due diligence is narrative alignment. If your pitch deck touts “enterprise-grade scalability” but your infrastructure is a monolith with no horizontal scaling, that disconnect will raise eyebrows.
Ensure your engineering team understands the strategic positioning of the company. For example:
If your value proposition is speed of innovation, be ready to showcase agile release cycles and feature velocity.
If your moat is data, be prepared to explain how your architecture supports data integrity, analytics, and compliance.
As we noted in Due Diligence Checklist for Software (SaaS) Companies, buyers are increasingly focused on how technical assets support long-term defensibility and growth. Your engineers should be able to speak to this fluently.
4. Prepare for Live Sessions: Code Walkthroughs and Architecture Deep Dives
Buyers will often request live sessions with your technical team. These may include:
Code walkthroughs: Demonstrating key modules, design patterns, and test coverage.
Architecture reviews: Explaining system design, scalability, and third-party dependencies.
Security Q&A: Discussing how you handle vulnerabilities, data protection, and compliance frameworks (e.g., SOC 2, GDPR).
To prepare, conduct mock sessions internally. Assign a facilitator (often the CTO) to lead the discussion, and coach team members on how to answer questions clearly and confidently. Avoid overly technical rabbit holes unless prompted—focus on clarity, rationale, and risk mitigation.
5. Clean Up the Codebase—But Be Strategic
It’s tempting to launch a last-minute refactoring sprint, but resist the urge to overhaul your codebase right before diligence. Instead, focus on:
Removing deprecated or unused code
Improving documentation and inline comments
Ensuring test coverage for critical paths
Standardizing naming conventions and folder structures
Buyers don’t expect perfection—but they do expect professionalism. A clean, well-organized codebase signals engineering discipline and reduces perceived risk.
6. Document Everything—And Make It Accessible
Documentation is often the unsung hero of technical due diligence. Ensure you have:
Architecture diagrams and system overviews
API documentation and integration guides
Security policies and incident response plans
Development workflows and deployment procedures
Organize these materials in a secure, shareable format—often within a virtual data room. As we discussed in Completing Due Diligence Before the LOI, having this level of readiness can accelerate the deal timeline and build buyer confidence early in the process.
7. Coach Your Team on Buyer Interactions
Finally, remember that due diligence is not just a technical exercise—it’s a human one. Buyers are evaluating your team as much as your technology. Coach your engineers to:
Be transparent about known issues—but frame them with mitigation plans
Stay calm under pressure and avoid defensive responses
Demonstrate pride in the product without overselling
In some cases, the buyer may be evaluating whether to retain your team post-acquisition. How your engineers present themselves can influence retention bonuses, earn-out structures, or even the buyer’s willingness to proceed.
Conclusion
Preparing your engineering team for technical due diligence is not just about passing an exam—it’s about telling a coherent, credible story about your technology, your team, and your future. With the right preparation, you can turn a potentially stressful process into a strategic advantage.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
How to Share Proprietary Code and Technical Documents with a Potential Acquirer—Without Losing Your Trade Secrets
For founders and CEOs of software companies, few moments are as strategically delicate as sharing proprietary source code and technical documentation with a potential acquirer. On one hand, transparency is essential to move a deal forward. On the other, premature disclosure of trade secrets can expose your company to significant risk—especially if the deal ultimately falls through.
This article outlines a practical, risk-mitigated approach to sharing sensitive technical assets during M&A due diligence. Whether you’re fielding interest from a strategic buyer or preparing for a formal process with a firm like iMerge Advisors, these steps can help you protect your intellectual property while maintaining deal momentum.
Why This Matters: The Asymmetry of Disclosure
In most M&A conversations, the seller bears the burden of disclosure. Buyers want to validate claims about product architecture, scalability, and IP ownership. But if the deal doesn’t close, the seller walks away having revealed their crown jewels—while the buyer walks away with insights that could benefit a competing product or investment.
This asymmetry is particularly acute in software and SaaS transactions, where the value of the business is often tied directly to proprietary codebases, algorithms, and technical know-how. As we’ve seen in numerous transactions at iMerge, the key is to structure access in a way that builds buyer confidence without compromising your long-term defensibility.
1. Use a Tiered Disclosure Strategy
Not all information needs to be shared at once. A well-structured M&A process staggers disclosure based on deal progression:
Pre-LOI (Letter of Intent): Share high-level architecture diagrams, product roadmaps, and summaries of IP ownership. Avoid sharing actual source code or detailed technical documentation.
Post-LOI, Pre-Diligence: Once exclusivity is granted, provide more detailed documentation—such as API specifications, system design documents, and security protocols—under strict confidentiality terms.
Late-Stage Diligence: Only at this stage should you consider granting access to source code, and even then, under tightly controlled conditions (see below).
This phased approach aligns with best practices we’ve outlined in Completing Due Diligence Before the LOI, and helps ensure that sensitive materials are only shared when the buyer has demonstrated serious intent.
2. Strengthen Your NDA—And Go Beyond It
While a Non-Disclosure Agreement (NDA) is standard, not all NDAs are created equal. Work with experienced M&A counsel to ensure your NDA includes:
Specific definitions of “Confidential Information” that include source code, algorithms, and technical documentation.
Use restrictions that prohibit reverse engineering, derivative works, or use of the information for competitive purposes.
Survival clauses that extend confidentiality obligations beyond the termination of discussions.
Injunctive relief provisions that allow you to seek immediate legal remedy in case of breach.
However, legal protections alone are not enough. As we often advise clients during exit planning strategy sessions, enforceability can be difficult and expensive. That’s why technical safeguards are equally important.
3. Use a Secure, Monitored Code Review Environment
When it comes time to share source code, never send it via email or allow it to be downloaded. Instead, use a secure, read-only code review environment. Options include:
Virtual Data Rooms (VDRs): Platforms like Intralinks or Firmex can host encrypted documents with granular access controls.
Code Escrow Services: Services like Iron Mountain or EscrowTech can hold source code in escrow, releasing it only upon deal close or under specific conditions.
On-site or virtual code review sessions: Allow the buyer’s technical team to review code in a controlled environment (e.g., via screen share or on a dedicated machine) without the ability to copy or export files.
Some sellers even watermark code snippets or use monitoring software to track access and activity. These measures may seem extreme, but in high-stakes deals—especially those involving AI models or proprietary algorithms—they’re increasingly common.
4. Limit Access to Need-to-Know Personnel
Insist that only essential members of the buyer’s diligence team—typically their CTO, lead engineer, or outside technical advisor—have access to sensitive materials. Require the buyer to provide a list of individuals who will review the code, and include this list in your NDA or data room access agreement.
In one recent transaction facilitated by iMerge, a SaaS company limited code access to just two individuals on the buyer’s side, both of whom were required to sign personal confidentiality acknowledgments. This level of control helped the seller feel confident in proceeding with diligence, even though the deal ultimately did not close.
5. Consider Code Obfuscation or Partial Disclosure
In some cases, it may be appropriate to share only portions of the codebase—such as modules related to core functionality or integration points—while withholding more sensitive components. Alternatively, you can provide obfuscated versions of the code that demonstrate structure and logic without revealing proprietary algorithms.
This approach is particularly useful when dealing with strategic buyers who may operate in adjacent markets. It allows them to assess code quality and architecture without gaining access to trade secrets that could be repurposed.
6. Prepare for IP Ownership Questions
Buyers will scrutinize your IP chain of title. Be ready to demonstrate that all code was developed in-house or under valid work-for-hire agreements, and that no open-source components are used in ways that could trigger license contamination (e.g., GPL).
7. Have a Contingency Plan if the Deal Falls Through
Even with all precautions, there’s always residual risk. That’s why it’s important to:
Track exactly what was shared, when, and with whom.
Revoke access to data rooms and code environments immediately if the deal terminates.
Monitor the buyer’s product roadmap and public releases for signs of IP misuse.
Be prepared to enforce your NDA if necessary—but recognize that prevention is far more effective than litigation.
Final Thoughts
Sharing proprietary code and technical documentation is a necessary step in most software M&A transactions—but it doesn’t have to mean giving away your trade secrets. With the right legal, technical, and procedural safeguards, you can strike a balance between transparency and protection.
Firms like iMerge specialize in helping software founders navigate these complexities, from structuring secure diligence processes to negotiating favorable deal terms. Whether you’re preparing for a strategic exit or fielding inbound interest, a thoughtful approach to IP disclosure can make or break your outcome.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
