Ten Takeaways from The Art of M&A Due Diligence

Workshop Attendees Share Key Lessons in Due Diligence
By Jack Prouty, President of the M&A Leadership Council

Next month is your last chance in 2017 to join the M&A Leadership Council for The Art of M&A Due Diligence. In this unique workshop setting, you’ll dive into best practices in due diligence alongside your colleagues and M&A experts from BDO, Willis Towers Watson and others. Here’s a look at some of the lessons that past attendees learned from The Art of M&A Due Diligence.

“The acquisition rationale drives diligence activities.”

Before you begin due diligence, it’s important to consider how the deal fits into your organization’s growth strategy. Sometimes revisiting your acquisition rationale is sufficient to kill the deal, if the target doesn’t meet your strategic requirements. If you do move forward, understanding the strategy can help you shape where to invest your due diligence efforts.

“Don’t fall in love with the deal.”  

One of the biggest mistakes we can make as M&A practitioners is to look only for reasons to move forward with a deal, pushing aside potential red flags. Instead, the most seasoned practitioners go into every deal with a skeptical eye, looking whether doing this deal makes sense. This approach keeps you from overlooking possible deal killers, and can even save time in the diligence process if you work to identify deal breakers as early as possible.

“Establishing a DMO is truly a best practice.”

We’re familiar with the Integration Management Office (IMO), but establishing a Diligence Management Office (DMO) has emerged as a best practice for serial acquirers. Using a DMO allows your due diligence team to implement a structure, framework and methodology around due diligence. It also encourages communication among functional teams and gives your diligence lead a better way to address issues that fall into the “white space.” BDO recently presented an excellent webinar on the DMO.

“Executive leadership is key.”

Executive leadership consistently plays a significant role in the success (or failure) of M&A deals because they have the power and influence to shape an organization’s attitude toward an acquisition. They need to set the strategic direction and top-down guidance for bottom-up execution by the functional teams. Work with your executive team to help them take an active role in communication about every potential deal. 

“Remember S3: Speed, Synergy, Stability.”

The concept of S3 offers a short, simple way to remember the fundamental sources of deal value. “Speed” refers to moving as quickly as possible. The more time a deal takes, the greater the business risk and the higher the costs. Don’t move so quickly, however, that you rush through key aspects of due diligence. “Synergy” is the only true measure of success in any acquisition: have you created more value for shareholders? The search for synergies should start in due diligence. And “Stability” reminds us that our tactical goal, after deal announcement, is to maintain day-to-day operations at both businesses as efficiently and steadily as possible. During due diligence we need to flush out those cultural, operational and people issues that can impact stability and erode business value.

“IT due diligence is evolving and becoming even more important.”

One of the biggest gaps we see in due diligence is inadequate focus on IT. Too many companies are surprised later by the resulting issues, costs and complexities of IT integration, which can be traced back to lack of focus on IT due diligence. Now with the threat of cybersecurity attacks and the increasing impact of social media it is even more important for M&A professionals to rethink their approach to IT due diligence. No longer is it sufficient to use an IT due diligence checklist to evaluate a target company’s hardware, software and data assets. Moreover, a lack of cybersecurity sophistication could even kill a deal in certain scenarios.

“Be aware of cultural issues.”

Studies often show that culture clashes are a top source of M&A deal failure, yet practitioners continue to struggle with evaluating culture fit. Your M&A team can (and should) use every interaction with the target as an opportunity to glean insights about the target’s culture. This approach can help you identify the cultural “flash points” than need to be addressed to mitigate business risk with the target company and begin building trust and credibility with its key management

“Get functional teams involved early, and communicate, communicate, communicate!”

A common failing in due diligence is to restrict communications and involvement in the process to only a  few key resources because of concerns over confidentiality. However, there is a way to effectively balance the need for confidentiality with the need for the right, qualified functional experts to be involved in the process. One benefit of using a DMO is that the DMO leader can orchestrate the design and implementation of cross-functional teams that work on their own areas of specialization. It’s critical that subject-matter experts lead due diligence for each function, while actively communicating with the DMO and with other functional teams under an effective governance model that maintains confidentiality during the diligence.

“Excel isn’t the only tool for managing due diligence.”

Speed, communications, transparency, and coordination are key drivers of effective diligence, and these demand more robust tools than spreadsheets and emails. There’s a wide variety of tools and software available to help your due diligence team manage the process, and these can often be tailored to your organization’s unique needs and processes. For example, Intralinks provides virtual data rooms, which are now artificial-intelligence enabled.

“M&A really is both art and science.”

The M&A Leadership Council was founded on this very premise. There is both an art and a science in successful M&A, and often “the art” is the most critical. Theoretical knowledge, or the science of M&A simply isn’t enough to ensure deal success. It must be paired with real-world expertise, the “art” of M&A, that knowledge that comes from completing deal after deal after deal. Ultimately, what our attendees consistently find most valuable about these workshops is that they get to learn from and interact with leading M&A professionals who are subject matter experts in their field.

Whether your organization is considering your first deal, or you’re a serial acquirer with dozens of deals under your belt, you’ll take away plenty of lessons from The Art of M&A Due Diligence. Learn more.