Due Diligence is a reason that 62% of mergers or acquisitions fail to achieve their financial objectives. Fortunately, there are many ways to avoid this fate by properly executing this crucial M&A process.
This article examines the fundamentals of due diligence, exploring the different kinds of data which must be analyzed in order to assess the health a business and determine its worth. This includes analyzing the company’s competitive landscape performance, profitability, and the potential for growth in a volatile economic environment.
The first step is to analyze the overall balance sheet of a business with particular attention paid to its cash flow and the amount of long-term debt. Investors will be able see how the company handles their expenses and if they can deal with cash demands on short-term basis in a difficult economy.
It is also essential to evaluate a company’s strategic position, including the growth potential of its product lines as well as its market share in current markets, and the strength of its innovation capabilities. Investors should also look at the supply chain of a company to understand the risks and potential of its supply chain in a fluctuating economy. For example, whether it is able to handle fluctuations in customer demand.
It is important to understand the management and leadership of the business. This will help you identify any hostility that could flow down to the buyer and affect the operations of the company after the sale. It is also important to be aware of the cultural differences that exist between the two companies. This will assist the M&A team design a strategy to overcome any integration hurdles that might arise.
