Due diligence is a critical part of acquiring or selling an asset or stock. It’s the process of “kicking the tires” and “looking under the hood” in an effort to thoroughly evaluate the underlying financial and material risks, liabilities and other unknown attributes that lie under the surface. It's the responsibility of a business to assess that it is what it says it is, both financially and in all other aspects. Yet many business buyers fail to conduct due diligence properly—and end up paying for it after they've signed on the dotted line
Acquirers often focus myopically on the financial aspects of the target. They assemble expert teams to construct elaborate economic models in an attempt to predict the future and adjust for risk, but they fail to focus as thoroughly on other vital aspects of the business, such as legal and regulatory scrutiny, whether or not key employees will be retained, and whether cultures will be synergistic, or clash. It’s important to note that “failure” doesn’t necessarily mean that the new company goes completely down the tubes and dissolves. One KPMG study found that a whopping 83 percent of M&A deals did not boost shareholder returns, while a separate study by A.T. Kearney concluded that total returns on M&A were in fact negative. The reports suggest that this is due to mismanagement of risk, price, strategy, cultures or management capacity.
Due diligence requires collecting all the intelligence on the target, and that daunting process requires meticulous effort. For this reason we recently partnered with Dorset Capital and EisnerAmper, to host a web panel discussion focused on best practices, common pitfalls, and ways to optimize value prior to entering due diligence.
The one-hour session explores many of the nightmares often experienced during due diligence and how to avoid them, including:
If you missed this informative discussion where our panel of business experts dove into the nuances of M&A due diligence, and shared their extensive experience you can request the recording below.
Richard Andersen is the founder and CEO of ShareVault. He has an MBA from the University of California at Berkeley and has worked for companies such as Apple, eBay, Ernst & Young and MarketFirst. He brings an entrepreneurial mindset to everything he does and is passionate about creating strategic partnerships.