The importance of Due Diligence in M&A

When in the process of M&A is Due Diligence pertinent?

 

When a company is interested in acquiring or investing in another one, an investigation is necessary. This evaluation process is known as Due Diligence, and it’s used by the interested company in order to understand the structure, selling process, organizational culture, areas of opportunities, and the risks of becoming the new owner of that business.

When it comes to Mergers and Acquisitions, Due Diligence is not only recommended, but imperative, since it’s the only way to learn how both companies can work in synergy, become more profitable and have extra value.

Well executed M&A projects have 5 steps. But, when in the process of M&A is Due Diligence pertinent?

 

Exit planning: It may seem obvious, but the first thing in M&A is deciding to sell. In this step of the process the company has to ask itself: Why am I selling? Is it because I’m in bankruptcy or because I’m seeking to add value to my business? Once those questions are answered, the company can start to look for investors.

 

Preparation: This is where the team in charge of the transaction needs to start gathering information, designing strategies, preparing audits, reviewing financial reports, etc.

 

Marketing: It’s common for companies to start sending teasers to potential buyers, negotiate agreements and start receiving preliminary letters of interest.

 

Due Diligence: Now is time for the investigation to begin. Investment bankers can take care of this, by inviting a number of bidders for a presentation, site visits, meetings, draft contracts, etc.

 

Negotiation: This is where the company that is looking to sell starts receiving formal offers. What’s left is only to conceal in accounting, legal, compliance and financial matters.

You’re looking to sell or engage in an M&A process? Contact us, we will help you execute the Due Diligence process so your business lands in the best hands.

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