How deep should the extent of due diligence be in cases of small acquisitions?
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How deep should the extent of due diligence be in cases of small acquisitions?
The extent of due diligence required certainly depends on the nature and the scale of the transaction. Regardless of the size of the target company, due diligence should be thorough and tailored to the specific circumstances. I think that the following elements of Due Diligence are inseparable and must be included in any M&A process.
• Financial Review
• Legal and Compliance Review
• Operational Review
• Physical Assets and Real Estate
• Environmental and Safety Compliance
Perhaps the most important point to make here is that regardless of the size of the transaction, no element of the Due Diligence process should be either discounted or overlooked.I am also interested in hearing the responses. Our DD seems to be very short (1-2 weeks) for small acquisitions but I’d be interested in other’s opinions.
Even in small acquisitions, due diligence should be comprehensive, covering financial, legal, operational, physical, and environmental aspects. The process should be scaled appropriately, focusing more deeply on areas with higher risks or strategic importance. Ensuring that no part of the due diligence process is discounted or overlooked helps protect against unforeseen liabilities, supports accurate valuation, and facilitates smooth post-acquisition integration.
However the extent and focus of the due diligence process can indeed be influenced by the acquirer’s level of diversification. Companies that are well-diversified across different industries or markets may have a higher risk tolerance because their exposure is spread out. This allows them to absorb potential losses from a single acquisition more easily than a company that is not diversified.
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