Ignoring technical risks is one of the most common M&A red flags in tech-heavy deals. And when it comes to open-source software (OSS), the margin for error is shrinking fast. Acquirers who don’t dig deep into a target’s OSS usage risk inheriting technical debt, legal exposure, and integration headaches.
Here’s what savvy buyers look for during code audits to avoid post-acquisition surprises.
1. Unclear or Missing License Information
Let’s start with the basics. If the target company doesn’t have a clear inventory of licenses—ideally in the form of a Software Bill of Materials (SBOM)—that’s a red flag. It signals not only poor internal compliance but also a lack of visibility over critical legal obligations.
Some licenses (like the AGPL or SSPL) have strong copyleft effects, meaning your proprietary code might be exposed if it interacts with OSS under those terms. During a deal, this is the kind of clause that makes legal counsel sit up straight.
2. Incompatible License Combinations
Even if individual OSS packages are compliant, their combination might not be. A company might be stacking software under conflicting licenses (e.g. GPLv3 with Apache 2.0 code), creating an invisible legal booby trap. It’s essential to evaluate license compatibility holistically—not just line by line.
3. Forks and Abandoned Dependencies
Is the company using its own fork of an open-source library? That can be totally fine—until you realize the fork hasn’t been updated in three years. Outdated or poorly maintained forks often introduce vulnerabilities and complicate post-acquisition integration.
Buyers should check whether these components are actively maintained upstream, and whether the target has a plan to merge or replace outdated forks.
4. Missing Attribution or Notice Files
It’s surprising how often startups skip proper attribution or fail to include license texts in distributed software. That omission can lead to license violations—even in permissive environments like MIT or BSD. A company might be legally obligated to credit the original authors, and if it hasn’t, the liability gets passed to the acquirer.
5. No Internal OSS Policy
Finally, if the target can’t produce an open-source usage policy—or even describe how they evaluate OSS packages before adopting them—it suggests a culture of improvisation. Without defined governance, engineers might install dependencies based on Stack Overflow recommendations. That’s not exactly a due diligence dream scenario.
What This Means for M&A Teams
If you’re on the buy side, these red flags should trigger deeper inquiry, or even price renegotiations. And if you’re preparing for an exit, treating OSS compliance as a checklist item isn’t enough. It’s a strategic asset—or liability—that can influence timelines, valuations, and trust.
With a pre-deal OSS audit, both parties gain clarity. It’s faster, cheaper, and far less stressful than finding out six weeks before closing that a key product depends on unlicensed GPL code.
Proactive OSS management is no longer optional. It’s part of deal hygiene.
Want to avoid M&A red flags in your next deal?
Let’s talk. At Fossity, we help legal and tech teams uncover OSS risks early—saving time, money, and headaches during M&A.
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