Due Diligence is the main reason that 62% of mergers or acquisitions fail to achieve their financial objectives. There are numerous ways to prevent this from happening.
This article will explore the basics of due diligence through a review of the various types of data which must be analysed to assess a company’s health and determine its worth. This includes evaluating a company’s competitive environment, profitability, and growth potential in an uncertain economic environment.
The first step is to review a company’s consolidated balance sheet with a keen eye on its cash balances as well as the amount of long-term debt. Investors will be able to determine how the company handles their expenses and if they can handle short-term cash demands in a difficult economy.
It is also crucial to evaluate the company’s position from the perspective of its strategic positioning, which includes the growth potential of the product lines, the market share of the current markets and the strength of the innovations capabilities. Investors must also take into consideration the supply chain of a business to assess its potential risk and capabilities in a fluctuating economy. For instance, how it can handle fluctuations with the demand of customers.
Alongside analyzing the data, it is crucial to know the company’s leadership and management. This will allow you to discern any hostile behavior that might affect the acquisition company’s operations following the sale. It is also crucial to understand the cultural differences between the two companies. This will help the M&A team to develop a plan to overcome any integration issues that may arise.