Reducing M&A risk through improved due diligence
Making an M&A deal “work” is one of the hardest tasks in business. A handful of best practices can reduce the risk and give the deal a fighting chance. The inherent danger in due diligence is not that companies fail to do it, but that they fail to do it well. The deals that are being struck today are far riskier than those of the 1990s. Four “best practices” separate the winners from the losers in the M&A playoﬀs:
Call on the experts (internal and external) who have experience in helping companies identify and realize cost and revenue synergies.
Trust but verify – This refers to the process of verification in terms of ascertaining the completeness, accuracy and validity of a transaction, of groups of transactions or of balances.
Focus on what matters – such as: create an aggressive market penetration strategy; devise an innovative plan for product launches; realign the sales force; rationalize the supply chain network and IT applications and create a shared services organization. Identify the high priority, complex initiatives, determine the associated risks and craft risk mitigation plans.
Orchestrate the unveiling – smart acquirers know that analysts react more favourably to an announcement of an acquisition if it is followed up with a cogent discussion about the acquirer’s high priority integration initiatives, key risk factors and risk mitigation plans (including timing of each).
An acquirer that employs the right mix of professionals prior to signing a MOU will obtain a more thorough assessment of a target company’s financial, operational, management and legal risks. In the end, the ace up your sleeve should be the knowledge you gain from a best practice due diligence process.