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Which department you think should run the initial due diligence (to look for the first red flags) before moving forward to a more detail analysis/DD?
I believe that depends upon the business objective and the associated function to achieve the business objective. If the business objective is just to induce new technology e.g. Amazon acquired Zoox – then I think for them it is most important to understand R&D, software engineering, etc.
In general, Finance, Legal should be the first one to run initial due diligence.I understand it differs from acquisition to acquisition and the industry M&A is taking place. However in general I believe commercial DD could be the starting point.
It depends on the acquisition I would say but even then, I don’t believe just one department or function can do the initial DD. I believe as part of the initial DD, buyers should do financial, technology/product, sales/GTM process, and overall culture fit DD.
In technology, I firmly believe it’s a non-starter if the developers don’t green light it first. It should always be possible to view the specs for potential integration, they’ll be able to spot some flags immediately, such as if the technology itself is stacked well, written in the right language, and compatible with your product (if looking to integrate products).
Finance and legal should be involved from the beginning of due diligence. That said, depending on the type of company being acquired, different key personnel should be involved. For example, years ago I was involved in the acquisition of an escrow office. Finance and legal where involved immediately but we also brought in key escrow officers to determine if processes were compatible and cultures were in alignment. The financials showed for a successful acquisition, but being that escrow is a very relationship based environment, it was key to determine if the staff was likable and skilled in their profession in order to continue success.
Our company has the CEO and Director of M&A run the initial due diligence before including other departments. The CEO has a strong understanding of all sides of the organization, and our Director of M&A is incredibly well-versed in the industry. Once an LOI is signed, our CFO, COO/CIO, and legal are involved in the next steps of DD.
it depends on the acquired entity. Generally (and if in place) the corporate development/strategy perform an initial due diligence to confirm that the opportunity meets the acquisition standards and there are not obvious red flags. However in many times the technology department is involved as well to test the tech in place and evaluate the integration process.
In our company we usually have a combined team Strategy/Corp Dev, M&A and business unit looking initially at targets. If there is commercial merit in pursuing it, additional functional experts are involved. I find that in many cases relevant information for legal and other expert teams to review only becomes available at due diligence.
I think there can be a number of areas where red flags may come up. For example, in manufacturing there may be red flags e.g. in financial, legal, environmental, technical and commercial areas. Therefore, I think a cross-functional team is needed for the first red flag check. This team doesn’t have to be too big though initially and then can be expanded as things proceed
A cross functional team of CEO, M&A team, Legal (and Compliance) and business is crucial to obtaining a good view.
In healthcare perspective, I would think insights from RnD would ‘kick start’ DD spearheaded by legal and finance
I think it’s going to depend a lot on the size of the companies. For my part, I work in the field of SME’s and M&A activities are discussed and managed at CEO and Board level.
I think either finance or legal should project management the DD. The functional area that is closest to the merged company should very involved; however. For instance, if you were to acquire a company for its manufacturing capacity, finance or legal should still run the process. Manufacturing; however, should very involved.
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