10 Steps to a More Successful M&A Due Diligence Process

The M&A due diligence process has (thankfully) moved well beyond physical data rooms and floor to ceiling stacks of folders. The new normal for an increasing number of companies is the use of software, digital playbooks and automated analytics across reports and dashboards.

Such advances have increased the speed, efficiency and security of the M&A due diligence process – meaning companies can get to a go/no-go decision much sooner. And while technology is certainly driving advancement in some areas, the proliferation of “information everywhere” creates new challenges such as what exactly to focus on and an increas5ingly wide scope of due diligence.

To address these issues and move towards a more successful due diligence process a number of areas can be considered.

Where to begin?

Step 1: Look at the big picture

It’s easy to obsess on the minutia detail. Rather, the best way to approach due diligence is to take a step back to look at the big picture before jumping in. Ask yourself questions such as, “what exactly are we acquiring? do we really understand the target? how is the target specifically beneficial to our broader strategy, goals or mission?”

The due diligence team can get so focused on reviewing their individual sections of the workplan that they miss the “big picture”, so it is important for the project manager to bring the team together on a regular basis so they can share their findings and adjust the key areas of focus, if necessary.

Additionally, it should really go without saying that you must understand what you are buying – this will determine the scope of due diligence (i.e. what’s in/out of focus) and approach taken, in terms of man power and timeframe.

A clear understanding of the main opportunities and potential risks of the deal will enable you to apply the right mindset before deciding what to focus on – and potentially, save a lot of wasted time and money.

Step 2: Understand the value drivers

Value drivers determine the price and structure of a deal and therefore, the scope/nature of due diligence. It’s essential to focus on the key value drivers of the deal – these could include products, markets, customers, capabilities, culture, etc. – with deep dives performed in these areas. Every element of a company can be modeled through a series of value drivers. Through due diligence activities, seek out the drivers behind every dollar of revenue, every cost incurred, every penny of profit. Document and track these drivers through the analyses and they will serve a sound foundation of not only deciding the path of this particular deal, but also how to optimize the deal if a “go” decision is made.

Step 3: More than the numbers

While a strong due diligence process will be based in fact and supported by thorough quantitative analysis, be mindful of what is said beyond the numbers. Moreover, be mindful of what employees of the target say and do and how they feel about the company, the management and their likelihood of staying on board post-transaction. Listen intently to customer’s perceptions of the company, its products and people (online review websites can offer a good starting point). Is perceived market differentiation real? Will customers be likely to stay post-transaction? Collaborate with key suppliers throughout the process. Listen to their perception of the company’s image and business practices. Will they hold their prices? Will they get aggressive on terms & conditions?

Step 4: Bring the full team in as early as possible

Due diligence coordination is at the center of the due diligence process. Sometimes referred to as a Due Diligence Program Management Office (DD-PMO), this small team of senior and experienced people oversee and coordinate all activity. Frequently, a “two-in-the-box” approach is taken, where one senior representative from the Acquirer and one from the Target (possibly an external advisor) collaborate on most due diligence activities.

The DD-PMO and wider due diligence team should be considered and assembled as early as practically possible. As part of this, consideration should be given to whether external industry experts are required, if resources are available in-house, or whether a hybrid approach is more suitable. Additionally, team member’s responsibilities should be clearly-defined and a realistic due diligence timeline drafted.

Furthermore, it’s advisable to involve the integration team in the early stage of the deal to allow them to become familiar with the Target and work more efficiently should the deal complete (or to provide them with the chance to advise if the deal doesn’t make sense/is not feasible from an integration standpoint) – see below.

Step 5: Plan for integration ahead of time

Planning for integration in the due diligence phase of a deal can help fast-track integration planning activities and smooth the hand-off between teams. Assume a transaction is a “go” until it is not. As such, think about integration in every interaction and analysis. Highlight key risks or items that may need to be addressed. Record ideas for synergies. Evaluate key personnel in the Target. Progress made in the due diligence touch points will save time and effort after the deal closes and will accelerate time to value from any deal.

Key information for integration planning arises from due diligence findings and recommended action points – it is therefore crucial that findings can be easily shared with the integration team well in advance.

Key points to consider here include:

  • Engage integration team members early;
  • Make use of due diligence findings (don’t ignore them);
  • Put together a first draft integration vision;
  • Ensure the integration team are given the opportunity to assess if integration will be possible.

Step 6: Consider due diligence etiquette – not just a nicety

This goes beyond good manners. Considering the following will help in executing a drama-free due diligence process:

  • Consider whether the deal been communicated to the target’s employees – if not, those going on-site may need a “cover story” (it’s important to liaise with the target on this point and what exactly will be said);
  • Ensure the deal team is aware of “deal-breakers”, highlighting these as they are discovered/speaking up;
  • Aim to combine management Q&A and site visits with third party advisors for reasons of efficiency (avoid repetition of issues being discussed);
  • Coordinate external advisors so all parties know each other and to ensure key findings are being shared with the right individuals. This can be achieved via an initial kick-off meeting and regular check-ins thereafter.

Step 7: Get your playbook in order

Well in advance of due diligence commencing, a deal team must ensure their due diligence playbook is in order. Think of a playbook as a set of best practices to guide you through the complexity of the M&A process. A playbook goes beyond a checklist and includes guidance, a set of supporting tools/templates and tasks to complete as part of a workplan.

Where a company makes the effort to establish and implement best practices across the due diligence process within a playbook, they can expect the following:

  • More effective management of people resources;
  • Alignment of deal objectives across team members;
  • Improved monitoring and reporting on the status of due diligence (the playbook serves as a reference point to progress made).

Step 8: Work collaboratively and in real-time

Regardless of the team size, having the ability to accurately define responsibilities to individuals/workstreams, keeping on-task and working with full visibility of the current situation is critical. You can then promote accountability by tracking progress with real-time status updates on all deliverables – the generation of which can be automated and achieved with one click. Furthermore, monitoring progress with real-time reporting means key decision makers have real-time access to any key risks flagged/deal breakers with a few clicks (which can easily be linked to integration activities).

Step 9: It’s about people, too

Many M&A failures are attributed to culture clashes – buttoned-down formality vs Hawaiian shirt casual, as an example. Any deal should have a compatible management philosophy, but the reality is most deals focus too heavily on the littlest detail. Mercer outline that “43% of M&A transactions worldwide experienced such serious culture issues that deals were delayed, terminated or purchase prices were negatively impacted.”

To prevent a potentially damaging culture-clash, consider cultural fit as an essential component of your next deal. The best way to determine this is to take the time to go on-site and speak to the people who work there – both to management and select employees (if permitted by the target company). Give due attention to the retention of key staff and employee turnover (Glassdoor and LinkedIn are useful places to start).

Step 10: Remain objective & avoid deal fever

Relationships will develop between members of the Acquirer and the Target. As the process unfolds, remaining objective can be a challenge. Having advisory or due diligence team members who act in oversight, quality assurance or “challenger” roles can be useful in keeping working teams in check.

Harvard professor Gerald Zaltman says that 95% of purchasing decisions are subconscious. This applies to not only consumer goods but decision-making in general. How can you escape this trap when it comes to making M&A decisions? Continually keeping a watch for a number of key issues and behaviours is a good place to start. Issues to be mindful of include:

  1. Lack of data: While every Target will have a different level of sophistication with regard to data, systems and reporting, a Target which has a consistent lack of availability for a broad set of the proposed data should be treated with caution.
  2. Inconsistency of data: if inconsistencies in data from different sources within the Target begins to arise, the Acquirer should proceed with caution until the root causes for those inconsistencies are identified and understood. This can be an early warning sign for poor systems, non-existent management controls or low-quality people or processes, etc.
  3. Duration of data production: If requested data takes an inordinately long time to prepare and deliver, caution should be exercised. Depending on the root cause, this could be an early warning sign of deficient systems and processes which need to be fully understood or it could be a message about the openness of the Target to the proposed deal. This may be acceptable in some situations (ex – a hostile take-over) but can be a major warning sign in other transactions.


  • Revamping your M&A process starts from taking a step back and looking at the big picture, understanding the value drivers and looking beyond the numbers;
  • Bring the team in as early as possible, plan for integration ahead of time and consider due diligence etiquette;
  • Get your playbook in order, work collaboratively and in real-time;
  • It’s about people, too – so consider the human side of the deal;
  • Remain objective and don’t let deal fever take over.

A more successful due diligence process in less time? It’s definitely possible with Midaxo.

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