January 25, 2020 at 8:48 pm #105225
I would offer that Due Diligence by the target company should be just as extensive as that of the acquirer.
What are your thoughts?February 25, 2020 at 7:09 pm #107328
Absolutely. Due diligence by target helps them understand whats the maximum value that can be realized from the acquisition. It also helps them put a better case and deal terms for the acquisition.February 28, 2020 at 6:19 am #107454
Yes, I would agree due diligence should be just as stringent when completed by the target, as it is when completed by the buyer. However, the target likely does not know the details of the buyers strategy who they are completing the due diligence for. The strategy would influence the materiality and focus areas for the due diligence, and likely means the seller still needs to complete their ‘strategy specific’ due diligence. The target may have an idea about the types of strategies potential acquires would deploy, and could build out due diligence around these, however it maybe at a higher cost than necessary.May 11, 2021 at 11:34 am #119647
I believe the key word to focus on in your due diligence question is “..as extensive.” I agree the target company should conduct due diligence but how extensive really depends on the target company leadership, culture, and future prospects. If the valuation or initial offer is at a multiple that far exceeds expectations, would a costly extensive due diligence make sense? One would certainly not want to sell to a company that is not a cultural fit and could potentially destroy value, but then again everyone has different motives (i.e. entrepreneur’s that like building but don’t like running companies.)May 27, 2021 at 8:18 pm #120090
I believe it is important for the target to conduct as much DD as needed to reach a confident position that the merger or acquisition is the right option for the company’s future.June 11, 2021 at 3:38 am #120401
Marco Túlio Garcia GonçalvesParticipant
I agree, because when you do this, you can find the troubles that purchaser probably will see and prepare a fast and good response for this problem. Or you can improve your defense with data and evidence when the acquirer companie try down the price.June 11, 2021 at 9:02 pm #120412
Those that have previously commented have largely hit the nail on the head. Due Diligence of the target is just as critical. I’ve seen a number of deals fail to close because the target company has completed strong due diligence and determined that the deal isn’t the right fit for them (usually on several fronts). This almost always benefited the target company in negotiations, integration discussions, and ultimately whether or not the deal made sense to carry out.June 20, 2021 at 3:36 am #120639
While financial DD is critical, I am continued to be astounded how little emphasis is put on HR and commercial DD. I really encourage non-financial individuals to drive and have an equal share. I enjoyed reading the Polycom case study, highlighting their informal process with key ‘deal parameters’ that had to be met to make it a viable candidate.June 24, 2021 at 12:18 pm #120723
Absolutely, 100%, unequivocal YES! Hindsight is 20/20, right? We merged our dental practice with a large PE backed group. We completed our DD off of the information that they provided; there is not a lot of public information available for PE. Turns out they were overleveraged, acquired underperforming assets, and they had insufficient capital reserves. When dentistry in the USA was shutdown for the pandemic, they had to do a major recapitalization to avoid folding. A lot of equity partners lost a lot of money, we most likely will not receive the final installment of our subordinated note, and I am now part of a team trying to improve performance.
It is going to be an expensive lesson to learn!June 30, 2021 at 10:29 am #120903
It depends. I would say the target company as the seller and acquirer as buyer has different objectives to achieve. It depends on what is most important and relevant to their objectives. Whatever aspects which are crucial to achieves their objectives, they should do it as extensive as possible.July 2, 2021 at 9:03 pm #120980
More the target company prepares and looks for items, the more they will have negotiation power and timely completion of the deal. Due Diligence will help the target company to set the minimum expectations from the sale. They get a chance to clean up the books, look for unrecorded assets & liabilities, etc.July 23, 2021 at 7:00 pm #121307
I agree – the target company also has a responsibility to vet the acquirer on the same fronts – financial, strategic and cultural. Just as for the acquirer, the information and the extent of the diligence will significantly depend on the strategic motivations of the target as well. A seller who is looking to divest completely a unit or element of their operations may be more concerned with the financial viability of the acquirer than the strategic/cultural match however a seller who is looking to leverage synergies and technologies may be much more focused on the strategic and cultural understanding.July 27, 2021 at 9:47 pm #121426
I agree, especially if a large portion of the target’s leaders and employees are being absorbed into the acquirer’s company. Performing proper due diligence of the acquirer will determine whether or not it would be a good fit for the overall business strategy and culture of the target.July 31, 2021 at 7:58 am #121496
I would agree as long as the cost does not exceed the benefits.
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