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Follow on Google News | Discovery in Due Diligence and the Essential Steps to TakeThe stakes have changed in M&A “due diligence” over the past few years. A growing interest in cross-border investments, increasing regulation and a competitive marketplace have all complicated M&A transactions.
By: Ross Whittaker By Ross Whittaker The stakes have changed in M&A “due diligence” over the past few years. A growing interest in cross-border investments, increasing regulation and a competitive marketplace have all complicated M&A transactions. For buyers, the pressure is on to quickly identify attractive targets, conduct thorough due diligence and close the deal. Buyers need much more sophisticated due diligence practices to ensure sound investment decisions. The best dealmakers have adapted their definition of due diligence to align with the biggest investment challenges they’re now facing. These investors take the time to develop a solid investment thesis and anchor their due diligence process to it. They have also expanded their definition of due diligence and undertake it much earlier in the deal life cycle, focusing their diligence on proving that thesis from the bottom-up. They are adept at staging their due diligence resources to their best advantage. And they’re willing to walk away when necessary, no matter how much time and money they’ve invested in the due diligence effort. Successful acquirers minimize reactive decisions by using their investment thesis to create a filter to assess every opportunity. It’s the best way to prevent the team from digressing from core objectives, particularly when presented with a great number of potential targets. Once developed, the investment thesis should be considered a living document. Successful acquirers continually update their strategic plans over time to ensure that the investment thesis reflects current strategic objectives. In addition, they also periodically test their investment strategies and revise them to reflect changes in their business and in the market. Successful acquirers also take the time to ensure that their due diligence teams are kept up-to-date on the investment thesis and use it to guide their work. There is no other single factor that is more important in determining whether a due diligence exercise will be a success or a failure. This helps the team prioritize its work and focus its search for the right kinds of target companies. It also helps to enforce a uniform due diligence methodology by which findings are always analyzed according to the investment thesis. However, keeping the investment thesis at the forefront of the entire team’s activities can be challenging. Due diligence teams are often made up of a broad spectrum of accounting, legal, operational, regulatory, industry, and other experts. If the deal is a cross-border transaction, the effort is compounded by international diligence requirements. While each of these areas requires specialized expertise, successful acquirers are careful to ensure that team members do not operate in silos, but share their findings across the team. Regardless of your company’s size or the scope of a pending transaction, it pays to begin preparation early in the pre-transaction period – and take advantage of virtual data room technology. By working with a datasite, transaction teams can scan and index all relevant documents, and create a logical, centralized electronic due diligence library that is remotely Web-accessible, secure, searchable and easy to update and amend. It allows everyone access and generates notifications to all users when new information is gathered allowing all to share their findings across the team immediately. A smooth, well-planned due diligence process with a highly structured indexing methodology and the right datasite technology is also much more likely to ensure that all required disclosures are made to the right parties and that the transaction is optimally managed and controlled. One best practice that leading dealmakers are very clear on: the need for a consistent methodology, anchored by a detailed due diligence checklist, for every opportunity they consider. Successful acquirers do not deviate from this practice. They apply it to every opportunity that is being considered. This is the best way to keep the team focused on what needs to be identified to answer the key questions of the investment thesis. Experienced acquirers have developed a standard list, and modify it to address the specific parameters of the deal. Just as important, they establish procedures to make sure everyone on the team is working from the same checklist, a task that can be difficult when dealing with multinational due diligence teams. Equally important, as the seller considers bidders, those with industry experience often have an advantage. Their diligence teams are more detailed in their investigations, and may be asking tougher questions, but this is often viewed as a plus by sellers who are looking for committed partners who can help them grow their business. The bottom line is that the most successful acquirers invest in experienced professionals who can help them more quickly get to the most important factors in pursuing a transaction. Are you interested in learning more about best practices in due diligence? Merrill DataSite and the M&A Advisor have partnered to publish the quintessential dealmakers guide series – ‘The Best Practices of The Best M&A Dealmakers’. Drawing on the experience and expertise of the ‘best in class’ dealmakers, this second chapter on the guide: ‘Mitigating Risk and Creating Value: A Focused Approach to Due Diligence’ illustrates the redefinition of due diligence in today’s market and how it can be applied to due diligence planning, methodology, and team organization - citing recommendations and advice from deal making professionals on how to overcome due diligence challenges and maximize the value in deal opportunities. About Merrill DataSite Merrill DataSite is a secure virtual data room (VDR) solution that optimizes the due diligence process by providing a highly efficient and secure method for sharing key business information between multiple parties. Merrill DataSite provides unlimited access for users worldwide, as well as real-time activity reports, site-wide search at the document level, enhanced communications through the Q&A feature and superior project management service - all of which help reduce transaction time and expense. Merrill DataSite’s multilingual support staff is available from anywhere in the world, 24/7, and can have your VDR up and running with thousands of pages loaded within 24 hours or less. With its deep roots in transaction and compliance services, Merrill Corporation has a cultural, organization- As the leading provider of VDR solutions, Merrill DataSite has empowered nearly 2 million unique visitors to perform electronic due diligence on thousands of transaction totaling trillions of dollars in asset value. Merrill DataSite VDR solution has become an essential tool in an efficient and legally defensible process for completing multiple types of financial transactions. Learn more by visiting http://www.datasite.com today! For more information, please contact Merrill DataSite: Tel: 1-866-399-3770; For full text: http://www.datasite.com/ For more DataSite Insite articles: http://www.datasite.com/ Follow us on Twitter: @merrilldatasite End
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