Sobering statistics, worth repeating from Due Diligence: Strategy is Not Enough, up to 70 to 90 percent of mergers and acquisitions fail due to inadequate Due Diligence. One would think at this stage we have learned some best practices and applied these to change this outcome.
In my prior article, I spoke about the fundamentals of what due diligence is, why it is important and shared some best practices. In this article, I want to share from my experience of leading due diligence:
Top 10 things you need to do to not fail and lead successful due diligence
To lead due diligence is both part science and part art and not one size fits all in approach. The science is the knowing what information to gather and questions to ask. The art is experience and wisdom; having a cultural awareness of those involved, knowing what to do with that information, especially unknown conditions and circumstances, identifying where to lean in and question the details, and navigating the organization to find the answers. This translates into being able to constantly zoom in and out when leading due diligence.
To lead due diligence you must:
- Be strategic in your approach
- Be tactical when it comes to the details
Strategic In Approach
- Understand the what, the how and the why behind the M&A and strategic fit and goals. Ensure alignment among leadership on buyer and seller side around these goals. Communicate and ensure these are understood by both the due diligence and integration teams. When you kick off the due diligence effort it is important to manage expectations upfront and set some ground rules on approach, share relevant background, and conduct a question-and-answer session with both the buyer and seller organizations.
- Involve key stakeholders from both buyer and seller organizations. This establishes a trust and cultural compatibility among leadership and the teams and helps foster transparency, so issues are raised and addressed sooner rather than later.
- Communicate often. Determine with leadership and due diligence team the frequency to report out on due diligence findings as it progresses. Identify any risks and issues and how to mitigate these, include areas of improvement and additional investment and any other items to enable decision makers to be fully informed as the agreement is being developed.
- Pay attention to people and cultural compatibility. A focus on numbers overlooks the most important detail to success post M&A. It is important to be able to “read the room” to recognize and navigate issues, have difficult conversations and make necessary adjustments.
Tactical in the Details
- Sign a confidentiality agreement to protect sensitive data. Set up a secure data room to allow documents to be exchanged between buyer and seller.
- Establish a team of multi-disciplinary experts to review and conduct the due diligence for each perspective area. It can range from legal, information systems, risk management to finance etc. and what disciplines are engaged and level depends on the complexity of the transaction. due diligence must be executed by those that are experienced in their area and know what to look for and questions to ask.
- Define roles and responsibilities and set up a process for report out of findings. Define a process to conduct and communicate outcomes often from the due diligence team findings and a timeline to complete due diligence. Bringing all the core team together is critical as a report out in one area can cross over into other areas and solicit a deeper dive. Focus on creating actionable items to keep the process moving and providing an accurate assessment of the strengths and challenges of the business.
- Create a due diligence checklist. Tailor the due diligence checklist to include the components necessary to see the transaction through and focus on the priorities. The information asked and reviewed is based on the type of transaction and level of integration. Again, here experience and wisdom matter to create the right results, the checklist is more than a manual.
- Include the integration team as due diligence evolves and develop an integration plan. Share any information that will impact integration to help create a successful integration and execution plan after the deal is signed.
- Post transaction support. Provide support post-transaction to ensure a seamless transition. This could include consulting services and optimizing the integration and execution plan to ensure optimal success.
I hope you found these tips helpful. There are other considerations when leading due diligence especially in the complex world of M&A. Please contact me for more information.
