Managing Successful Due Diligence
Good diligence starts before a company acquisition target is even identified. A prospective buyer should be able to decide what he wants and dislikes and manage successful due diligence. It helps to plan beforehand and navigate the tedious search process by allowing the management get rid of companies that do not meet the requirements for longevity and transparency.
The main objective of carrying due diligence is simple. The buyer wants to minimize all possible risks and avoid getting stuck in a rut once an acquisition is made. This process is straightforward. But it must always begin with clear-cut expectations about what can be gained with the acquisition. These benefits jump-start the process and what diligence procedures are vital.
Due diligence helps identify all risks that emanate from owning a business or its assets, it considers everything leaving nothing out. The purpose of the investigation is to gain information in terms of transactions and valuation of assets. This helps to negotiate the price of the potential acquisition, point out warranties and identify setbacks. A board of directors is saddled with the task of making the final decision.
Based on the amount of information required in a DD investigation, advisors need to be engaged in analyzing everything relevant to the company and industry. These things include investments, accountants, lawyer and other person associated to the organization. The duty of the advisors should be well-defined to avoid a duplication of duties. They should be mandated to run through operational grey areas, knotty legal issues and other crucial components of the business with a fine tooth comb.
The key issues are dependent on the reasons for the acquisition, business nature and transaction as well. The focus of the examination of a target is to identify and clarify priorities early and avoid regrettable cases. Goals of profitability should not be your focus. What you must realize is that profitability is not sheer luck but a combination of resources, effort and skill hemmed together.
Before you acquire a company consider the following vital points. The company must be:
- Commanding market share in key locations
- Have potential for new products
- Show an improved scale from supply, advertising spend or an increase in products and services
- Penchant for expansion of production capacity
Successful due diligence is a crucial component of any acquisition process. It is a period where facts are accumulated to make a valuable decision thereby increasing the chances of success in future. This is not a process that can be fully delegated to outsiders. Inasmuch, as they can contribute, the ultimate decision should rest with managerial powers.
About The Author
Alam Qureshi is a Certified Business Intermediary (CBI), Certified M&A Professional and Broker of Record at ProClient Brokers Inc., Brokerage. He helps business owners learn how to sell a business so they can get the maximum value for their company. call us 416 364 5550 or CONTACT US to get in touch.
Date modified: 10-05-2019