How does the cost and length of Due Diligence change across market segments?

How are absolute cost, relative cost, and timelines of Due Diligence projects impacted by size in (1) a small company merger, (2) a middle-market merger, and (3) a mega-merger?

In my opinion, each Due Diligence project is different, and has to take into account the unique requirements and goals (including synergy goals) of the project. However, there are still certain traits that apply to mergers of different sizes.

The small company would have the greatest relative costs and a timeline comparable to or even longer than that of a middle-market company. It would also have the lowest absolute cost on account of its size. Ultimately lower levels of governance, controls and transparency mean more work is needed to get real numbers out of a small business. As well Due Diligence maybe required to be more extensive in various areas because of higher risks, and result in increased change management costs. For example, greater concentration of key employees (fewer people responsible for creating value) causes reduced power in individual contract negotiations and a greater impact from attrition. To balance the risk, a greater investment can be made in the form of retention packages, monitoring/feedback systems, HR sourcing backup people, etc. Additionally, legal remedies are less available to small businesses because of relative legal costs, reducing the protections that maybe present in the SPA. This increased risk can also require more due diligence expense.

The middle-market merger Due Diligence would have typically the shortest timeline, with more trustworthy documents and application of standardized processes, such as regular audits.

The mega merger would have even more available and pre-scrutinized data, and a higher potential for public data. However it would have such a greater scale that the timeline could be significantly longer, depending on the scope of the project and stakeholders involved. The relative cost would be the lowest, in general, and the absolute costs would be the highest.