Due Diligence

Buying a business is a calculated risk. What may seem attractive from the outside may look entirely different once an acquirer takes full control. That’s why due diligence is such an important step in the M&A process. Done right, it helps acquirers minimize risk and gives them confidence that they can actually create sustainable value through the acquisition.

Due diligence has become dramatically more complex over the last two decades. In some cases, acquirers will have to cope with as many as ten different work streams tied to due diligence in the course of evaluating a single deal. Typical steps of commercial due diligence include:

  • Markets and Competition. What is the relative position of the target? Are there any disruptive challenges or threats to the business model on the horizon? How will the transaction help the acquirer navigate industry consolidation or create new opportunities for growth?
  • Review of Target Business Plans. Are the top-line growth assumptions overly ambitious? Have the cost assumptions been pressure-tested against achievable benchmarks or possible external shocks?
  • Synergy Valuation. This is perhaps the most critical role in the due diligence process. What kind of value can the acquirer unlock, either by changing the way the acquisition is managed or by integrating it with the acquirer’s core business?
  • Process Support. What’s the best way to stay on top of the due diligence process? How will the acquirer manage the multiple stakeholders involved, including investment bankers, lawyers, and regulators?
  • Integration Blueprint. Is the acquirer planning ahead for the integration even before the deal has closed? Has a clean team been established? Are you developing the postmerger integration (PMI) roadmap for the first 100 days?
  • Regulatory Support. Are there any regulatory issues to consider, and how will they be resolved?

Due Diligence with Minimal Risk

There are six steps to a structured M&A process. The first three steps help identify promising companies that can bring value to the corporate portfolio. The next three steps, explained below, take the buyer through the due diligence process, negotiation, and pre-close integration planning.

  1. Conduct due diligence. Due diligence is the all-important assessment process that defines the potential synergies and the value at stake in the deal.
  2. Negotiate and sign. After a comprehensive due diligence, the acquirer can confidently attribute a financial value to each risk and opportunity. The result? A negotiation strategy grounded in facts, not gut feelings, with clear criteria for how much to bid and when to walk away.
  3. Prepare PMI and reviews.  Acquirers shouldn’t wait for the closing to start planning for the ultimate integration. PMI planning should be an integral part of negotiating the deal. It will ensure preparation to rapidly realize the available synergies—which is an important factor in market reaction to the deal.
Mergers & Acquisitions (M&A)