Functional DD Timing
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There’s a great deal of debate within my organization around when functional experts are engaged in the M&A process. Finance prefers to do a considerable amount of financial due diligence before opening the conversation up to the impacted functional areas. The operations side feels their input it critical in vetting the assumptions used in Finance’s analysis.
What has been your experience?
In my experience it has always been best to have a blend of both. I am on the operations side of the world and believe that the ops team can see whether or not at the end of the day the acquisition is a good fit and can be seamlessly integrated into our existing business. However the finance team often finds financial pitfalls or opportunities that ops team can not see. Again pointing to the need to have a healthy mix. Great question!
Jon
I agree with Jonathan’s comment that involving both operations and finance is crucial. The best outcomes will result from having diverse perspectives, which will come from early and regular collaboration across teams. Working in a silo has too many pitfalls, since no one person or team knows how every other functional area operates, what works well, what is difficult, etc. I’m not suggesting decisions by committee, but keeping a small group informed and talking to one another will likely lead to better outcomes and more trust.
In my organization, we seek inputs from the Operations team early in the financial DD process to make sure that the hypothesis and assumptions baked in by the finance team are logical and pragmatic. I agree that Finance Team always gets the priority in the DD process but we need to make sure that the right stakeholders are also aligned and that the NPV and IRR calculations are not based on unrealistic assumptions
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