CFO Insight LLC
Don’t shortchange your acquisition by underinvesting in your Due Diligence team. Companies often assign lesser-qualified staff members to an M&A transaction, because the best people are not available… too many more important things to do. Think about that decision. The Company is probably making one of the most significant investments in history, and they don’t staff the operation with the best personnel.
Each M&A transaction is different, and requires rapid situation assessment, and planning, completed in a professional and sensitive manner. The subtleties of a transaction may not be apparent to a lesser-qualified executive, and as a result, the due diligence process may not identify additional risk or opportunity – each factor may impact valuation.
Once the target company has been selected, identify the keys to value for that particular investment – those critical few items that must be realized to make the transaction successful. Once identified, align your best resources to investigate the issues during the Due Diligence process. A successful Due Diligence process is one that validates each of the critical assumptions in the business model, identifies any potential significant downsides or upsidesnot identified within the valuation model, and begins a macro integration plan to ensure that integration is within the financial model boundaries. All this must be done in an environment that may be somewhat hostile, since the target company employees may believe that, if the Company is sold, they will lose their jobs. Best case, they will understand that the business environment will almost certainly change.
It is somewhat easy to select a team that will validate the assumptions, since the model will highlight the skills required for. For example if high-quality manufacturing is a key to value, assign the best manufacturing and engineering resource to the task. However, how do you assign personnel for the unknowns – upsides and downsides? If they are unknowns, what skill set do you select for the Due Diligence?
The best selection would be highly skilled executives who understand the broad business issues and the Company strategy.
As you identify your acquisition targets, develop a due diligence team roster that protects your investment – even if you need outside expertise to complete an effective review. An acquisition may be the single most significant decision you will make in your career…