Due Diligence is the main reason that 62% of mergers or acquisitions fail to achieve their financial objectives. Fortunately, there are many methods to avoid this happening by ensuring that you are conducting this vital M&A process.
This article examines the basics of due diligence by reviewing the various types of data which must be analysed to assess the health of a firm and determine its What is Due Diligence value. This includes evaluating a company’s competitive environment performance, profitability, and growth potential in a volatile economy.
The first step is to examine the consolidated balance sheet of a business, paying particular attention to its cash flow and the amount of long-term debt. Investors will be able to see how the business manages its costs and if they are able to deal with cash demands on short-term basis in a difficult economy.
It is also crucial to assess a company’s strategy position, including the potential for growth of its product lines, market share in its current markets and the capacity to innovate. Investors should also consider the company’s supply chain to understand its capabilities and risk in an uncertain economy, including the ability to handle fluctuations in demand from customers.
In addition to looking at data, it is vital to study the company’s management and leadership. This will help you identify any hostility which could impact the acquisition’s operations following the sale. Finally, it is also important to know the cultural differences between the two companies. This will allow the M&A team to create a strategy for overcoming any integration obstacles.
