Code Unveiled: The Open-Source Paradox in M&A Transactions

Introduction: 

The use of open-source software (OSS) has been on the rise in recent years, with more and more programs and applications incorporating it into their codebase. This is due to the many benefits that open-source software provides, including cost savings, flexibility, and the ability to customize the software to meet specific needs. Puzzlingly, in the realm of mergers and acquisitions (M&A), where transparency is paramount, companies often resist revealing the underlying source code of their software. This paradox raises critical questions about the clash between the open-source spirit and the guarded nature of corporate due diligence. 

The Rise of Open-Source Dominance: 

Open-source software has emerged as a driving force behind the technological advancements of the 21st century. Renowned projects like Linux, Apache, and Python have laid the foundation for countless applications and systems. The collaborative nature of OSS development encourages a diverse community of contributors, fostering innovation, adaptability, and cost-effectiveness. 

Moreover, companies increasingly recognize the advantages of incorporating open-source components into their proprietary software. This symbiotic relationship allows organizations to leverage the collective wisdom of the open-source community while focusing on their unique value propositions. As a result, the lines between proprietary and open-source software have blurred, with the latter often forming the backbone of the former. 

M&A and the Code Conundrum: 

In the context of mergers and acquisitions, due diligence plays a pivotal role in assessing the value and risks associated with a target company, particularly when it comes to intangible assets such as software. However, despite the prevalence of open-source elements in modern software, companies frequently hesitate to disclose their source code during the due diligence process. 

There are several reasons why companies may be hesitant to show the code at the time of an M&A due diligence, like the code may contain proprietary information that the company does not want to share with potential buyers, security vulnerabilities that doesn’t want to disclose due to OSS outdated components or even licensing violations. But the main reason why companies do not want to disclose their source code is to maintain confidentiality in the M&A process, i.e., so that it is not revealed that they are in the process because of information that may be contained in the code or because of the code itself. 

A Way Forward: Secure Collaboration and 100% confidentiality 

To address the open-source paradox in M&A due diligence, companies can adopt strategies that prioritize security without compromising transparency. Implementing robust access controls, and secure collaboration platforms can be some of them. While these strategies are useful, their main disadvantage is the difficulty of achieving 100% confidentiality. To tackle this, a novel solution appears, where the audit is performed on fingerprints of the audited code, allowing the total anonymization of both the code and the company being audited. This process, patented and developed by Fossity, not only guarantees absolute confidentiality because of the above but, per its zero-trust feature, the auditors do not know the fingerprints they are analyzing belong to. 

In a few words… 

The paradox of open-source prevalence amid code secrecy in M&A due diligence highlights the need for a novel approach to software auditing, like the Fossity developed. As the technological landscape continues to evolve, finding a harmonious balance between transparency and secrecy will be crucial for fostering innovation, trust, and successful M&A transactions in the dynamic world of technology.