December 28, 2020 at 8:34 pm #115967
I’ve been involved in several due diligence cases and in everyone the obvious conclusion was not to purchase, yet the owner had already made up their mind regardless. I therefore question the need for the activity.January 3, 2021 at 6:22 am #116063
That shouldn’t be the case although I have experienced few acquisitions where the DD was done after the decision was made. In my opinion the DD should drive the decision not the other way aroundJanuary 12, 2021 at 9:17 am #116236
I agree with the observation Clifford has made – if a CEO/owner/investor wants to buy a company, they often will, even if the DD results strongly suggest to move away from the deal. There is a lot of ego coming in the way.
Here the decision makers have to work on themselves and set thresholds in the beginning what their absolut minimum requirements are.February 10, 2021 at 2:34 pm #116993
Yes, this happens quite a bit. Indeed DD should drive the decision, but then again, as any marketer will tell us, most purchasing decisions (whether of a company or or of anything else) tend to be primarily emotional ones.February 14, 2021 at 4:57 pm #117109
Very good question. It is sure that by starting a DD, which is bind to non-negligible costs, a strong interest to proceed with the transaction is present.I think that the DD can especially invalidate a pre-decision already taken or highlight risks to be taken into account during the post merger integration.February 15, 2021 at 2:24 am #117115
Indeed, the idea of DD is generally to “confirm” the understanding of pluses about a business that is to be acquired. However, if the DD result suggests otherwise, there remains a strong bias (with ego in play, as previously mentioned) to pursue given the amount of resources spent albeit this being an illogical decision – spending good money after bad.February 18, 2021 at 3:00 pm #117233
In most cases the DD is used for confirm a base hypothesis. While a thorough DD is essential for any decision making interpreting the outcomes of the DD are often challenging and dependent on the risk appetite of the buyer.February 28, 2021 at 9:39 am #117668
I think it’s 50/50. If the will to do the deal is very strong, DD becomes more of an exercise to get the seller to reduce the valuation. It also helps the buyer figure out areas of risk post-acquisition, so that the buyer can put in control measures.
In other cases where the will to do the deal is not strong, or the commercial aspects of the deal is not very attractive, then DD becomes justification to walk away from the deal, without hurting relationships with the seller too muchFebruary 28, 2021 at 4:01 pm #117676
I seems to see what Clifford observed in terms what happening with current DD process in the company I worked for…March 5, 2021 at 3:34 pm #117840
good point by Clifford, it is dangerous especially when a decision is derived without DD and in cases like these seems the DD is taken as a by product to justify the decision.March 9, 2021 at 7:24 pm #117965
The activity remains valid, despite the owners’ decision to ignore their conclusions..
If it works out for the owner, perhaps it was luck, perhaps there were gaps in the analysis which can be improved on for the future?
If it does not work out for the owner, well, you told him/her so 😛March 14, 2021 at 1:21 pm #118183
It all depends on the mindset of the owners.
If they are dead set to acquire, if anything, the information can perhaps help them be acutely aware of the potential problem areas to focus on once the deal has been completed.
However, if the information presented is compellingly negative, however inclined the owner had been in the first place, it should give them pause.March 31, 2021 at 8:56 am #118636
I believe it really depends on how familiar the investor is with the target’s business. I have heard that before… but to start with the mindset one already knows everything, defeats the objective of the DD even before you start. Even if the investor is familiar, the question should be to consider what are the high-risk issues/ areas for the deal so as to shape the DD process. Otherwise it is just paying lip service and a complete waste of time and money.April 1, 2021 at 2:47 am #118652
I think this process should drive the end decision. In my experience dealing with a DD for my company, both sides were very committed to wanting the deal to happen, but the DD clarified some of the grey areas that needed to be sorted out. I believe there is good value in the DD process; but perhaps at times, not all the parts.April 24, 2021 at 6:42 pm #119353
By the time due diligence is being conducted, I do agree in most situations the decision has already been made and financial resources have been committed. I do think the importance of the exercise in these situations would be to ensure that post-merger integration can be made as seamless as possible.
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