Getting ahead of your Due Diligence


Due diligence is a critical phase in any merger & acquisition activity where a thorough investigation of the potential target company is conducted before the deal is concluded. This comprehensive process involves an extensive review of the company’s financial, legal matters, administrative, IT operations, software development processes and other key aspects.

This is a discovery process and set of best practices and recommendations that provide guidance on key risk mitigation needs along with opportunities for value creation. It identifies key integration or separation areas that could impact the value of the deal and evaluates all the disparate tech components within a company, and everything required to use that tech to uncover hidden threats.

The goal is to outline anything that could make for less profitable transactions. By investing in technical due diligence, companies can make faster, informed and value-based decisions that directly impact value creation.

It is in this process that the amount of technical debt is being carried is highlighted. This cost in technical debt needs to be offset from the value of the company. Technical debt can masquerade as legacy systems or mis-architected systems. 

Company policies – Are there company policies that are particularly important to your business? Perhaps your unlimited paternity/maternity leave policy has endeared you to employees across the company. This is a good place to talk about that, especially if there are international operations with different statutory regulations.

Executive profiles – A company is only as strong as its executive leadership. This is a good place to show off who’s occupying the corner offices. Write a nice bio about each executive that includes what they do, how long they’ve been at it, and what got them to where they are. It is also the time to potentially map where these executives would be accommodated in the new organization.

Here are some tips on how to get ahead of actual due diligence event in an mergers and acquisitions:

•           Start early and be prepared.

•           Identify potential deal breakers.

•           Conduct a thorough review of the target company’s financials

•           Review the target company’s contracts and agreements.

•           Review the target company’s intellectual property rights.

•           Review the target company’s compliance with laws and regulations.

•           Review all software licenses and adherence to open-source software licensing.

•           Understand cultural fit and operational readiness.

A poorly executed due diligence in mergers and acquisitions can lead to unwelcome surprises post-transaction, such as previously undisclosed litigations and liabilities or compliance fraud or labor law violations.

Failed mergers and acquisitions examples would be:

1)      AOL and Time Warner (2001) US$65 Billion

2)      Daimler-Benz and Chrysler (1998) US$36 Billion

3)      eBay and Skype (2005) US$2.6 Billion

 

Due diligence in mergers and acquisitions is essentially an effective way for buyers to protect themselves from risky business deals. As the process requires a great amount of communication between the two parties, the businesses are also able to form a working relationship.

 

Comments

Post a Comment

Popular posts from this blog

How AI will Change the Global Business Landscape

Image
  Artificial intelligence (AI) is the technology that enables machines to perform tasks that normally require human intelligence, such as perception, reasoning, learning, decision-making, and creativity. AI has the potential to transform every aspect of business, from operations and customer service to marketing and innovation. In this blog post, we will explore some of the ways AI is changing the global business landscape and what it means for businesses of all sizes and industries. Increasing productivity and efficiency One of the main benefits of AI is that it can automate repetitive, tedious, and error-prone tasks, freeing up human workers to focus on more creative, strategic, and value-added activities. AI can also enhance human capabilities by providing insights, recommendations, and guidance based on data analysis and machine learning. For example, AI can help: Optimize supply chains and logistics by predicting demand, optimizing routes, and reducing waste. Improve ...
Read more
Image
  How to Build a Good Leadership Team A leadership team is a group of people who are responsible for setting the direction, strategy, and culture of an organization. A great leadership team can inspire, motivate, and empower employees, customers, and stakeholders, and drive the organization towards its vision and goals. However, building a great leadership team is not easy. It requires careful planning, selection, communication, and development of leaders who share a common purpose, values, and skills. I will discuss how to build a great leadership team in six steps: 1)     Determine what you want leaders to prioritize. 2)     Identify and recruit potential leaders. 3)     Communicate the company vision and values. 4)     Value diversity and inclusion. 5)     Provide feedback and coaching; and 6)     Foster collaboration and trust. I will also provide some tips and examples f...
Read more
Image
  The Hidden Challenges of Remote Work: Beyond the Freedom and Flexibility     While many celebrate the freedom and flexibility of remote work, there are several challenges that can lurk beneath the surface. From fostering meaningful connections to maintaining focus, navigating the remote work landscape can be a complex undertaking. Here are some of the key challenges faced by remote workers and how to overcome them: Social Isolation: The lack of physical interaction can lead to feelings of loneliness and isolation. This can be especially challenging for individuals who thrive on social interaction and collaborative environments. Solution: Schedule regular video calls: Use video conferencing tools to connect with colleagues and team members. This can help build relationships and foster a sense of community. Join online communities: Participate in online forums and groups dedicated to remote workers. This can be a grea...
Read more