M&A due diligence is an essential procedure that helps buyers evaluate the commercial, financial, and legal aspects of target companies prior to completing an acquisition. The benefits of a board of advisors information gained through due diligence is crucial to the successful integration of the acquisition and can identify potential opportunities or risks that would otherwise be overlooked.
Despite the fact that every M&A transaction is unique yet, there are certain processes that are common in every deal. These include reviewing and gathering financial documents, evaluating regulatory compliance, and assessing operational performance. Additionally, specialized forms of due diligence such as environmental, human resource and intellectual property can be utilized to provide additional analysis.
Due diligence can take a long time and overwhelm M&A teams. This is especially so when the acquirer has to complete multiple tasks within a limited time frame. The time constraints could increase your chance of ignoring important risk factors, making a decision too quickly or overlooking red flags.
It’s important to understand that a due-diligence program requires careful consideration of confidentiality. M&A teams should understand that the selling party and their attorneys are bound to protect confidential and sensitive data in accordance with the terms of a confidentiality agreement. It is common to employ professional advisors in order to oversee this process and to ensure that all information collected is reliable and accurate.
Due to the sensitive nature of data gathered during due diligence, it’s important to organize and store documents in a manner that allows them to be searched. The organization of materials alphabetically or numerically, for example, can make it easier to find the right document.