Due Diligence in Mergers and Acquisitions (M&A)

Due Diligence in Mergers and Acquisitions (M&A)

Due diligence in everyday language is about verification and fact checking on a claim , thing, or situation. Its most applied usage, though, is in Finance, particularly due diligence in Mergers and Acquisitions (M&A).

Due diligence in Mergers and Acquisitions (M&A) is the process of auditing or investigating a business opportunity or deal to verify that all the facts, figures and financial information claimed by the other party are correct, and that there are no other risks and possible areas of concern that may have been undisclosed. It is done to ensure that the buyer has all the correct information on which to base the purchase.

 The role of Due Diligence in Mergers and Acquisitions (M&A) transactions

Due diligence in Mergers and Acquisitions (M&A) is fundamental to the entire process from evaluation to deal closure. Due diligence in M&A transactions plays multiple roles. The M&A due diligence process ensures the best fair-value price for both parties, especially the buyer. It also enables the buyer to get a look in at how the company is managed and run, and thus provides advance knowledge to plan around opportunities and challenges to maximise profitability should the deal  go ahead. The M&A due diligence process can identify synergies between both businesses as well the scalability of the combined operation.

Hence, while Financial Due Diligence is the cornerstone of the M&A due diligence process, due diligence in Mergers and Acquisitions (M&A) also encompasses other types of due diligence.

The Due Diligence in Mergers and Acquisitions (M&A) process: Types of Due Diligence in M&A and the M&A Due Diligence checklist

The M&A due diligence checklist must include the following  types of due diligence:

• Financial due diligence: Verifying the seller business’s financial statements and revenues, costs, profit margins, working capital, debt, cash flows, receivables and other KPIs. Financial due diligence is the foundation of due diligence in M&A.
• Operational due diligence: Investigating the operations of the seller’s  firm across all business functions from production to sales to identify strengths and weaknesses and to verify future term sustainability. Strategic fit with the buyer’s operations is also a key area of operational due diligence.
• Legal due diligence: Examining the regulatory laws applicable to the M&A and the two businesses and verifying the seller’s compliance with legal and regulatory obligations. Legal due diligence decides closure once financial due diligence and operational due diligence are deemed satisfactory.

Technology as a subset of Operational Due Diligence is also rapidly becoming an independent M&A Uue Diligence Process area by itself in the M&A due diligence checklist.

Due Diligence challenges in Mergers and Acquisitions (M&A) : the need for superior Due Diligence in Mergers and Acquisitions (M&A) services

Due Diligence in M&A Transactions must be thorough and of high quality. It must incorporate the findings from financial, operational, and legal due diligence with skill and insight to arrive at the right Go/ No Go decision.

Due diligence challenges in mergers and acquisitions are many. Some of these are due to obvious reasons such as lack of information from poor record keeping on the target company’s part. Some could arise from ‘penny wise pound foolish’ decisions on buyer’s part to run low cost but poor quality due diligence.

However, most of these challenges stem from the quality of the firm and the personnel conducting the process. Problems can arise due to the team being inefficient with time and cost overruns. Or they may lack the necessary technology. However, the biggest challenge is the quality of team brainpower.

The due diligence team must have the skills and the experience to know what to look for as many of these may be intangible factors, e.g., the correct attribution of goodwill and brand value, or the insight to factor in culture fit between the two entities. Often, teams working in separate silos such as Finance or Legal miss out on vital cross-domain insights from not communicating effectively. Even worse, the silos themselves lack high quality domain experts. Ultimately, all of this results in the collective and individual lack of expertise to arrive at a correct valuation and deal decision.

Using the best high quality M&A due diligence services provider is therefore an imperative.

 Ensuring a Best-in-Class M&A Due Diligence process with MBG’s M&A Due Diligence Services

MBG Corporate Services helps you make the right investment and buying decisions with our M&A Due Diligence services. We add value with expert and timely analyses of the authenticity and accuracy of the target company’s financial, legal, operational, technological and tax reports.

Our experienced global network of experts identify and examine the underlying risks and opportunities in each transaction. We eliminate your post-transaction risks with our comprehensive target-company analysis reports.

Our M&A Due Diligence services cover the following areas to maximize the value of each transaction:

• Financial due diligence: Detailed analyses of the financials – Business Operations Review; Revenue and Receivables Analysis; Cost and Margin Analysis; Fixed Assets Review; Working Capital and Debt Management; Related Party Transactions; Financial Statements Review. Identifying key strengths like sustainable profits and cash flows as well as exposing any potential deal breakers.
• Operational due diligence: Understanding and mitigating risks from operational failures while assessing potential savings and efficiency improvement through– HR, Manufacturing, Production, Marketing and Financial Management; Warehouse and Supply Chain Management.
• Legal due diligence: Evaluation and review of the legal aspects of the target company, identifying potential legal risks from its sale or purchase. Our detailed Legal Due Diligence reports highlight the legal considerations of the move and identify steps to mitigate potential areas of conflict.
• Technological Due Diligence: Studying the target company’s technological and technical capabilities and identifying potential risks. Software plays a major role in the management of modern companies. It is critical to identify and understand possible compatibility difficulties arising from a target company’s use of incompatible software.

Our Financial Due Diligence Deck Financial Due Diligence Services

Our Operational Due Diligence Deck Operational Due Diligence Services

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