Buy-Side & Sell-Side M&A Due Diligence: Tips & Steps for Success
No matter which side of the coin you’re on – buyer or seller – the M&A process can introduce many challenges and complexities. To avoid transaction delays and ensure a maximalization in deal value, it is essential to conduct M&A due diligence.
As experts in helping enterprise-level organizations pave the path to a successful M&A, we’ve outlined some essential information about buy-side and sell-side M&A due diligence alongside some tips and steps to establish success.
What is M&A Due Diligence?
Well ahead of any M&A transaction, it is vital to complete M&A due diligence by conducting a comprehensive review of the target company’s infrastructure across finance, operations, legal, tax, and IT systems.
This involves assessing the target company’s financial statements, assets and liabilities, contracts, intellectual property, regulatory compliance, market position, tax environment, IT infrastructure, and more to provide M&A dealmakers with the opportunity to identify areas of alignment, get ahead of integration road bumps, and set stage for a successful deal.
Preparation comes in two forms: buy-side M&A due diligence and sell-side M&A due diligence.
Buy-Side M&A Due Diligence
From the buyer or acquiring company’s side, the goal of the M&A due diligence process is to investigate the target company’s infrastructure to get ahead of risks and potential issues while empowering investors to make informed purchase-price decisions.
Tips and steps to establish buy-side M&A due diligence success:
- Develop clear objectives for the M&A investment strategy and ensure they are aligned with company goals.
- Create an M&A due diligence roadmap and attribute internal and/or external resources with the financial, operational, legal, and tax-related expertise that is needed to efficiently execute the transaction.
- Conduct a comprehensive review of the seller’s financial performance, including financial statements, cash flows, and accounting procedures to get ahead of potential issues and identify areas to cut down on costs.
- Assess the target company’s operations across production, supply chain, sales, and customer relationships and compare these against market conditions and industry standards to validate assumptions.
- Evaluate the seller’s legal and regulatory compliance environment (e.g. contracts, licenses, permits, filings, etc.) to identify potential risks and liabilities that may impact the M&A transaction process.
- Analyze the target company’s IT infrastructure for effectiveness and implement protocols to ensure the protection of any sensitive data or intellectual property involved in the M&A transaction.
- Assess the seller’s company structure, leadership team, employees, and culture to identify synergies and areas of constructive collaboration.
- Maintain effective communication with company leadership, board members, and investors to keep everyone up-to-date and informed.
Sell-Side M&A Due Diligence
From the seller or target company’s side, the goal of the M&A due diligence process is to highlight key strengths, address any potential issues up front, and ensure a maximalization in purchase price down the line.
While M&A due diligence is typically spearheaded from the buyer’s side, it is vital for sell-side companies to do everything in their power to get ahead of the process by ensuring their data is accurate, reliable, and easily accessible. This, in turn, is key to gaining the trust and respect of potential buyers.
Tips and steps to establish sell-side M&A due diligence success:
- Start the due diligence process as early as possible to provide adequate time to identify and correct issues, inconsistencies, and areas of improvement.
- Integrate and/or optimize a centralized platform to house, protect, and efficiently utilize company data.
- Analyze business fundamentals, operations, and infrastructure to identify and mitigate risks and potential M&A integration road bumps.
- Ensure financial documents, statements, and reports are created in alignment with accounting standards and best practices.
- Review contracts, agreements, and other legal documentation to address potential compliance issues ahead of time.
- Implement patents or trademarks to ensure sell-side intellectual property is protected.
- Identify key strengths, including selling propositions, customer success stories, and how the company stands out from competitors.
- Utilize M&A due diligence insights in discussions with potential investors to ensure a maximalization in value and set the stage for a successful sale.
Final Thoughts on Buy-Side & Sell-Side M&A Due Diligence
From slow documentation processes that impede transaction progress to insufficient in-house expertise, the M&A due diligence process brings many challenges from both the buy side and the sell side.
In order to drive M&A transaction success, it can often be more beneficial in terms of cost, time, and outcome to turn to a trusted external partner for support.
If you need a little extra support to bring your strategic transformation to life, our experienced team of M&A consultants at DLC is here to help.
With our project-based, heavily customizable approach, we drive M&A success by:
- Ensuring the availability of necessary historical operational data.
- Ensuring completion of current and prior period financial statements as needed.
- Acting as a liaison between auditors, investment bankers, and other stakeholders.
- Constructing forecasting models that support short and long-term decision-making.
- Implementing functional processes that align with current systems and tools to ensure ongoing lender requirements are met accurately and expediently.
- Training internal employees to execute more sophisticated reporting and analytics.
- Analyzing the “as-is” and making recommendations regarding people, processes, and systems that support the acquirer’s growth and profitability objectives.
