People are often surprised that acquisitions don’t deliver the results that they were expecting or at least hoping for. Post completion integration of the buyer and the target businesses is clearly important but so is the due diligence. You wouldn’t take a punt (except may be on the Grand National) without looking at the form guide, so if you’re buying a business you must also study recent form. English law has the concept of caveat emptor or ‘buyer beware’ so it’s critical that the buyer does a decent audit of the target business – business, financial and legal. Don’t just think you can rely on the contractual protection of warranties. As well as stress testing the potential investment, your Due Diligence report is also one of your key negotiating tools.
If you’re sitting on the beach this August mulling over whether or not to buy that business, here’s a simple Due Diligence checklist to ensure you get the best out of your DD and to make sure you give your advisers the right instructions:
- Title – page 1 of Due Diligence is to make sure the seller can sell what they are purporting to sell you
- Structure – use Due Diligence to choose the best acquisition structure
- Price – use the Due Diligence to determine and/or adjust the price
- Synergy – investigate the potential synergies with your business
- Post deal performance – use the financial Due Diligence to check the impact on your own performance metrics post deal
- Scope – timing, cost, competition and confidentiality may well affect your Due Diligence process. Get the scope of the DD sorted ASAP
- The right people – make sure you use some of your own people as well as your external lawyers and accountants to do the DD
- Key industry risks – make sure your advisers are aware of inherent and ‘normal’ risk in the industry. Ensure key risks (be it IT, environment, IP, real property etc) are investigated
- Questionnaire – start with a good Due Diligence questionnaire for the seller
- Going cross border – if you’re doing an international deal, give some thought to other risks that will throw up such as language, culture and rule of law.