Did you know that the majority of M&As never realize their value?
In fact less than half realize positive returns. Here are a few of the most common reasons:
- Due diligence that is limited to financial and contractual perspectives only (versus operational, positioning, resource based analysis, etc.);
- Lack of incentive compensation for corporate development and merger implementation team to achieve milestones and targets within specified time frames pre AND post-merger; and
- Failure to utilize an experienced corporate development team.
Before embarking down the time consuming and expensive due diligence process a high level “Shared Vision Check” should be undertaken by all involved constituents.
The check is simple: Is there an agreed upon Shared Vision for what the Happy Ending is for all constituents?
When discussing the “Shared Vision” putting together a preliminary due diligence packet consisting of some of the following items will help steer the conversation (major items to review as part of due diligence prep):
- Annual sales-by-sales rep and by lead source
- Clients, years as customers, frequencies, revenue and services by client
- Technology roadmap and customer usage
- Review of service delivery processes, tools, and playbooks
- Review of third-party partnerships and alliances
- Client satisfaction (measurement by client and product as applicable)
- Annual lost revenue (by client and product as applicable)
- Current pricing schedule and rates
- Unique service/product offerings
- Vision, mission and other pertinent organizational DNA / cultural materials
- Substitute (competitor) offerings
Many misunderstand the true value of due diligence. To the misinformed, it’s the time to review a company’s financials. However, when done right effective due diligence creates an “Investment Thesis;” otherwise to be used as a detailed action plan to steer the business forward to ensure goals and milestones are realized.
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