Due Diligence – Key to a Successful M&A Deal

Due Diligence is an integral part of any M&A process. Due Diligence is the research and analysis one company does in preparation for a business transaction, particularly regarding an acquisition. The overall purpose of due diligence is to ensure that there are no surprises when the transaction is complete and integration begins.

Here are three important things to keep in mind while doing due diligence:

  1. Begin at the beginning – Even though traditionally the formal due diligence process starts after the LOI is signed, it is best to start at the beginning of the entire acquisition process. The moment you develop your strategic plan and acquisition criteria is when due diligence actually starts.  Begin by having functional leaders develop what is important to them in due diligence regardless of the actual target. As you go through the search and screen process and into meetings with prospects, any data gathered can be matched back to this initial list. Once the LOI is signed, the new data you receive should provide support for what you have already discovered rather than reveal new information.
  2. Assign a Due Diligence Coordinator – The role of the Due Diligence Coordinator is to organize the formal due diligence process and ensure it is performed efficiently. This person is not necessarily the acquisition champion (running the whole acquisition process), but rather someone who is well organized and has project management experience. An important role of the coordinator should be to review the due diligence lists of the functional leaders for relevance and ensure that nothing important is missing. The coordinator then creates a single comprehensive list of questions and document requests to hand over to the seller. It is important to present all the questions to the seller together. Multiple questions and requests may cause fatigue for the seller and raise suspicion among the seller’s employees.
  3. Design the Integration Plan – During the due diligence process you will discover valuable information that will help you with integration planning. The details you find could suggest new ways to combine the acquired entity with your company. If due diligence is the gathering of information, integration is the implementation of what you discover. As you evaluate strengths and weaknesses of the target company you should be on the lookout for not only problems but also profitable enhancements that can create more value in the deal. If enhancements are made once the deal closes, it can make rapid contribution to the bottom line.

Bonus Tip: The biggest secret of due diligence is knowing when to stop. This process can go on forever, if you let it.