In my experience, having overseen diligence for multiple buy-side acquisitions, the process is called “confirmatory” diligence for a reason. The process is meant to confirm the investment thesis and the valuation. Every company has “hairballs” – nuggets of problems that can make an acquirer cough – but most are solvable in post-merger integration. The key is knowing what hairballs impact go/no-go decisions and which impact valuation to a material enough degree to warrant a purchase price reduction. If you’ve done your homework in financial modelling, synergies analysis should build in post-merger expenses to remedy hundreds of thousands of anticipated costs – all of which factor into the valuation. As such, most issues are assumed risks that are outweighed by strategic impact and thus result in the deal going forward. This may look odd to the outsider, but the CEO will have already presumed such risk in the initial deal analysis.
