How a Red Squirrel audit prevented a $10m bad acquisition
Technical Due Diligence Audit
Benton Place Partners, a Chicago-based search fund, sought to acquire a language services platform and enlisted Red Squirrel for technical due diligence. The 20-year-old target company, still led by its original founder, posed a significant challenge as our audit revealed severe issues in its codebase.
TL:DR
Benton Place Partners is a search fund based in Chicago. They identified a potential acquisition target: an online platform for language services. Before going through with the acquisition, they needed to complete technical due diligence and determine if the underlying software was worth purchasing.
About Benton Place Partners
Benton Place Partners approached Red Squirrel to conduct the technical audit. The target acquisition was a 20-year-old company still led by the original founder. Benton Place Partners needed to understand the quality of the code underlying the company’s platform.
The Challenge
The solution
Our auditor quickly identified deep issues within the target company’s codebase. We determined that the quality of the code was incredibly poor. The PHP codebase included one of the largest single source code files the auditor had ever seen. The Frankenstein codebase required intense documentation and onboarding for engineers to work in it, which means hiring and retaining high-quality engineering talent to work at the company would be difficult.
In addition, the codebase lacked automated testing, forcing the engineering team to regularly fix user reported bugs. Security vulnerabilities were also an issue, with our audit report warning the client to expect periodic attacks as is typical of such old PHP codebases.
The final report concluded that this was not a worthwhile investment.
“We're very grateful that he intervened early, so that we didn't have to go through all the other stuff we were rushing to do when the truth was this made it impossible for us to buy the company. There were other instances where we found out things about other companies that people waited to tell us until we were scheduled to meet, but that were super important. And we didn't think there was any reason for that formality, because time is money and effort.”
- Adeline Epstein, Principal, Benton Place Partners
Results
“Red Squirrel is the best service provider we worked with. I have zero bad things to say.”
- Adeline Epstein, Principal, Benton Place Partners
As a result of Red Squirrel’s technical due diligence audit:
Because our auditor started having concerns after just the initial phone call with the target company, we quickly communicated an update, warning the client that the audit report would be negative. The quick turnaround on the update saved Benton Place Partners time (and money) from being lost on a bad deal.
Benton Place Partners ultimately backed out of the acquisition deal, saving themselves from acquiring a codebase not worth the purchase price.