In business transactions like mergers and acquisitions (M&A), due diligence is a vital procedure whereby a buyer fully understands the seller. This review is conducted by the buyer through several questions and the documents he demands from the seller. While a thorough M&A due diligence process can aid a potential buyer in confirming important facts about the target company However, there are some challenges to conducting this check.
The most significant challenge is due diligence can take a long time and costly. It can take weeks, or even months, depending on the complexity of a transaction. Due diligence can also include a large group of third-party experts, ranging from CPA firms to conduct financial due diligence, to industry consultants who analyze the business model and future opportunities, environmental and labor lawyers. The experts will spend a large amount of time on site at the main headquarters, looking over prepared information and data.
It’s important for a seller to know the details of a due diligence procedure and plan in accordance with the due diligence procedure. This includes analyzing your negotiation strategy and creating the appropriate materials to review. Additionally, it is important to stay away from your emotions during the negotiation process, so that you can negotiate with a clear mind.
M&A expert Brett Dearing provides insight into the importance of due diligence and the reasons it’s a critical stage in the M&A process. Dearing provides an explanation in this fourth installment of PitchBook’s Mergers and Acquisitions 101 Series how M&A Due diligence can help to identify risks, confirm the valuation, and ensure the investment criteria of a potential company are fulfilled.
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