M&A Due Diligence: A Primer

August 20, 2020

When it comes to M&A transactions, the purpose of due diligence is to separate the detail from the sales pitch. The sales pitch may throw around a lot of attractive figures and growth forecasts your way—but due diligence helps you confirm pertinent information and obtain a complete picture of the business.

For instance, the sales pitch may tell you that a company’s assets are patented, but due diligence might reveal that they can’t be protected in the long run.

The sales pitch will give you the price, but due diligence will help you determine if it’s worth it. So, before you seal the deal, a comprehensive look at the company’s financial position and true performance.

In this blog post, we’ll look at the basics of due diligence and how to apply it in various M&A scenarios.

Preparing for Due Diligence

It’s best to start with the due diligence process as early as possible to have clarity about the other firm at an early stage. Going through negotiations and then carrying out due diligence is wasteful and prolongs the process unnecessarily.

Both sides will be asked to prepare a comprehensive list of documents and determine who is accountable for each element on the checklist. The documents required for due diligence include financial records, company ownership information, product information with growth rates, customer data, employee information and hiring policies, legal records, and a list of all tangible and intangible assets that the company owns.

Size and legal issues tend to bring about more complexity, and you may need to hire external merger and acquisition specialists in these cases. Depending on the size and structure, the process can take up to six months.

Conducting Sell-Side Due Diligence

To speed up the process, it helps to have some primary documents ready when you go in to make the sales pitch. This shows the potential buyer that you’re prepared and forthcoming about company information.

You can also use this information to determine which areas of the company require more attention and address them before you make the final pitch. It’s essential to view the due diligence process not as a burden, but rather, as an opportunity to learn more about the company and its ongoing operations.

Conducting Buy-Side Due Diligence

The buy-side will primarily use the information to analyze the firm’s overall standing with a focus on financials. However, the due diligence phase is also an excellent time to think about integration with your own company. This should help you uncover synergies and determine precisely how you plan to merge the company with your own.

Work with an Expert Commercial Business Broker

Gulfstream Mergers & Acquisitions has successfully conducted hundreds of mergers and acquisitions for numerous clients since 1993 in South Carolina, New Jersey, Ohio, Pennsylvania, Georgia, Florida, Massachusetts, and other areas of the US.

The leading M&A advisory firm has decades of experience in buy-side and sell-side opportunities and can help maximize the deal’s value to ensure your company’s success in the future.