Commercial Due Diligence
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Has anyone successfully engaged outside commercial due diligence providers? Or is it generally best practise to perform this aspect through conversations with management, and other intangible measures?
From my experience, both, internal and external views must be taken into account. Related to external view it depends on the industry or niche the M&A process takes place + the information base you already have on your own. Maybe a combination of assessing public information + industry insides of a consultancy (from big four, big strategy consultancies and smaller companies like e.g. https://www.newtonx.com/)
In my view, Commercial due diligence is one of the most critical aspects and ironically often the most underrated. Determining whether or not it should be undertaken internally or externally would depend on the industry, the location of the Target and the knowledge and experience of the team spearheading the due diligence. Subject to availability of time and resources, a dual approach would be ideal. For e.g. in a complex manufacturing company, it would be useful to get industry experts to assess the production efficiencies with a focus on interaction between materials, manufacturing space, equipment, human resources and data, plant capacity and whether it is being optimally used and how it compares to local, regional and global best practices and benchmarks. On the other hand, doing a commercial DD internally helps the acquirer to better understand the target and more importantly identify areas that it would need to focus on from a post take over integration.
From my point of view; both internal and external will play a role. for external; I try to find niche / boutique market agencies (consultancies) that specialize in the target industry. This is key to understand future market inflections, trends, regulation… that will impact positive or negative the Business plan (PESTEL, SWOT) and to validate market size, Share of market, growth rates of overall industry and customer segments… Is the target playing in the most profitable segments, is the growth sustainable etc.
Hi,
As living in Asian continent, I have tried to engaged with the outside industry which backfired due to many reasons. I think, management would be a good avenue to explore and resolve the DD process.
Hi Jon,
Let me share my thoughts here as I am currently in the process of doing a commercial due diligence on the buy side for my organization. In my opinion, definitely doing it all internally would be very challenging to say the least in most cases. As you will see on page 26 of the slide on this topic, the 6 broad areas (viz., Company Info., Expert interviews, Consumer Survey, Store Visits, Management Q&A and Desk research) are too broad and wide to do within an organisation to do full justice to this all important work considering what’s at stake. Atleast for 3 of these areas viz., Desk Research, Consumer Survey & Expert Interviews, one is better off taking the external support as that would make this exercise a thorough one to come to the right conclusions, leaving no blind spots.
Hope this helps.
I would say that external versus internal Due Diligence does have its place and purpose. I have used an external Due Diligence source to assist in areas that we lack in expertise.
My current company relies on both internal efforts and external consultants for commercial due diligence when we identify potential M&A targets we are interested. It generally gives senior leaders a full picture of market opportunities for the target’s sector, existing products & competitors, technology trend, sector growth rate, etc. I always find the external consultants provide very helpful information and insightful perspective, particularly current market developments and agency regulations.
This course is the first time I have really heard that commercial due diligence can or is conducted by an external party. In the medical device industry I am in, I have always seen commercial due diligence conducted by the senior leaders of the organisation or not at all!! For an external party to complete due diligence, they would certainly find useful information for the buyer, however I find industry reports that are typically bought by external parties to be wildly inaccurate. If external due diligence providers rely on such industry reports the value they provide may not be much.
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