Assessing software quality for private equity buyer OxGreenfield

Costo and Xtend, vendors of warehouse logistics systems, join forces.

Operating a modern warehouse efficiently is a matter of both state-of-the-art hardware — conveyors, scanners and order-picking robots —  and software that controls this hardware and ties it into the overall logistic processes. It makes sense therefore that Costo Intralogistics and Xtend Business Software, specialists in these respective areas, had already established an intensive and successful collaboration. To capitalize on the increasing demand for warehouse automation, both companies were looking for new impulses and were open to new investors.

Assessing Software Quality For Private Equity Buyer Oxgreenfield Yielddd Software Due Diligence | YieldDD

For OxGreenfield, a private equity firm, it thus made equally good sense to acquire both companies and facilitate their further growth under single ownership. But how well were Xtend's software solutions able to meet future requirements and support ambitious growth plans?

How software quality determines capacity for growth

OxGreenfield asked YieldDD to assess the quality and growth potential of the Xtend software solutions. This involved analysing the scalability, modularity, IP dependencies and security of the software, as well as the amount of  technical debt and other software aspects that determine its capacity to support growth. In order to determine, for example, how easily new software products can be integrated into the warehouse control system, it is important to know the degree of modularity. Does adding new devices require the rewriting of entire chunks of software code, or is it merely a matter of adding a new module?

Building trust and getting creative

Making these kind of judgements often requires more than technical expertise alone. That was certainly true in this case where the target company was reluctant, because of understandable security concerns, to provide a copy of its source code for analysis by an outsider. "I'm particularly proud of how we found a way to address these concerns", says YieldDD's Marco van Os. "We were able to gain the trust of Xtend and to find some quite creative solutions that removed their worries but that still allowed us to access their source code. This was critical in moving the process forward again."

Providing clarity about post-deal steps

YieldDD's findings provided an objective assessment of the target company's software quality, based on its in-depth technical expertise and substantiated by external benchmarks. By translating the in-depth technical findings into non-specialist language that investors can understand, these findings offer a realistic basis for the valuation of the target company. Moreover, with each finding come specific improvement options that are valuable regardless of whether deal ultimately happens or not. In this case the deal did happen and OxGreenfield acquired a majority share in both Costo and Xtend. YieldDD's software due diligence made sure that the new owners will not have any unwanted surprises with the software and that from day 1 there is a realistic basis for post-deal improvements and developments needed to realize the ambitious growth plans.

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