Due diligence is the reason that 62% of mergers and acquisitions fail to achieve their financial goals. There are many ways to avoid this fate by properly conducting this important M&A process.
This article will explore the basics of due diligence, by looking at the various types of data which must be analysed in order to evaluate the health of an organization and determine its value. This includes assessing the competitive landscape of the company, profitability, and potential for growth in a volatile economic climate.
The first step is to analyze the consolidated balance sheet of a business with particular attention paid to its cash flow and amount of long term debt. Investors will be able to determine how the company manages their expenses and if they can handle short-term cash demands in a down economy.
It is also essential to assess the company’s position from the perspective of its strategic positioning which includes the potential for growth of the product lines and the market share of the current markets, and the strength of its innovation capabilities. Finally, investors should consider the supply chain of the company to understand its capabilities and the risk of an uncertain market, such as whether it can handle fluctuations in demand What is Due Diligence for its products.
Alongside analyzing the data, it is crucial to understand the business’s leadership and management. This will enable you to determine any conflicts that could affect the acquiring company’s operations following the sale. It is also crucial to know the cultural differences between the two companies. This will help the M&A team to develop a plan to overcome any integration hurdles that may arise.