What is acquisition due diligence?
Acquisition due diligence is the process by which you gather information about a business you are planning to acquire so that you enter into the purchase with full knowledge of all the relevant facts.
To ensure that the investigation is thorough, most prospective purchasers rely on trusted advisors who are experienced in acquisitions to guide them through the process. This allows the purchaser to feel much more comfortable with their decision.
The key phases of acquisition due diligence
The first step in due diligence is to evaluate the deal, to assess the key risks, and opportunities. Based on these findings, you then need to carry out a detailed investigation in three critical areas:
- The Business
And other areas that we support but do not lead:
- Legal (including environmental concerns)
Due diligence checklist
The checklist of items you need to cover during due diligence is very long and detailed, but we must ensure that your due diligence team pays close attention to all of them. The items on the list fall under ten main headings, as detailed in our blog “10 Steps Of An Acquisition Strategy”.
Effective due diligence
To enhance your overall due diligence efforts, you need to create a cross-functional due diligence team. Every team member should put the following questions to people at all levels in the company you are proposing to acquire:
- What are the three biggest problems in this business?
- What are the three biggest opportunities in this business?
Take care to avoid the two biggest due diligence mistakes:
- Having too much confidence in the company’s future revenue growth and profitability.
Misunderstanding the business we intend to acquire.