Due diligence is the reason that 62% of mergers or acquisitions fail to achieve their financial goals. There are many ways to avoid this outcome.
This article outlines the fundamentals of due diligence by examining the various kinds of information which must be analysed to evaluate the health of a business and determine its value. This includes analyzing a company’s competitive environment performance, profitability, and growth potential in a volatile economy.
The first step is to look at the overall balance sheet of a business with particular attention paid to the cash balance and amount of long term debt. Investors can see how the company manages their expenses and whether they are able to meet short-term cash needs in a tough economic environment.
It is also important to evaluate the position of a company in terms of its strategic positioning, which includes the growth potential of the product lines as well as the market share of the current markets and the strength of the company’s innovation capabilities. Investors should also consider the supply chain of a company in order to determine the risks and potential of its supply chain in a volatile economy. For instance, whether it is able handle fluctuations in the demand of customers.
It is essential to comprehend the leadership and management of the business. This will help identify any hostility that could trickle down to the acquiring company and impact its operations after the sale. It is also important to know the cultural differences between the two companies. This will enable the M&A team to devise an approach to overcome any integration obstacles.