Due Diligence requires extensive company and industry analysis, in-depth financial statement analyses, determining possible strategic synergies realizable between companies, and performing an array of valuation analyses. I can imagine that some of those Due Diligence tasks may be outside of your time constraint, especially considering that a thorough analysis is extremely important when considering an acquisition or exit opportunity. As a Buyer or a Seller, Due Diligence can be a daunting task, which can be made easier by using the support of a team of expert analysts with years of experience.

As a Seller you want to make certain that your data is organized and accurately represented to avoid scaring away a buyer or lowering your potential exit value. Lack of order and clear presentation of data can also lead to claw backs after an acquisition – claw backs are exceedingly painful.

As a Buyer you want to be certain that you’re getting value and are aware of the risks/synergies. Buying a business is risky, and risk should be outlined in a disclosure schedule with the ability to withhold escrow for misrepresentations. Potential synergies should be identified with a clear action plan to unlock synergies post acquisition.

Due Diligence Checklist

Company and Industry Analysis:

  • Understand trajectory of company and industry

  • Determine drivers behind the industry’s recent performance

  • Determine rationale behind selling/buying the company

Financial Statement Analysis:

  • Understand the financial metrics that drive company success

  • Determine where margins outperform/underperform competitors

  • Find opportunities to increase margins, reduce unnecessary or one-time expenses

Valuation Analyses Performed Through the Due Diligence Process:

  • Market Approach – in a free market, buyers will not pay more and sellers will not accept less than the price of a comparable business enterprise. By determining Public Comparable Companies and looking into M&A Precedent Transactions, the resulting price will be a reliable indicator of value

  • Income Approach – used to estimate the present value of the estimated future monetary benefits to the company by using the Discounted Cash Flow method

  • Merger Model – analysis of the combination of two companies, key assumptions including purchase price, cost and revenue synergies, financial statement adjustments, forecast financial projects for target and acquirer

Synergies:

  • Determining Cost or Revenue Synergies can make or break an acquisition from either side of the table

  • If Synergies are properly discovered and a detailed plan is given to realize synergies it can convince Board of Directors or Management

  • Cost Synergies can be realized through expected savings in operating costs after two companies join

  • Revenue Synergies can be realized through cross-selling products to customers, up-selling customers on new products, and by expanding into new territory

As described above (analyses described above are not all inclusive), due diligence is extensive and can be a difficult process if you lack the time and resources to execute properly. It’s our goal to make the process of buying or selling a business as easy as possible for you!

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2018-11-02T20:15:42+00:00