Last updated on June 23rd, 2023 at 10:15 am
INTRODUCTION
In today’s complex and competitive deal-making environment making the right acquisition at the right price is critical. Hasty decisions made to buy without completing overall business, technology, financial and operations assessments, may lead to the transaction being delayed or systemic problems not being uncovered until post transaction, causing business disruptions, stresses on your existing portfolio businesses and financial losses.
Worse still, the targeted business may not be correctly valued due to undisclosed issues pre-sale. Finding that out after the deal has been executed could be harmful to your overall future business plans. To minimize your transaction risk, its best to employ a fully integrated buy-side due diligence process that includes all aspects of business like financial, tax and operational due diligence.
A streamlined, integrated approach and buy-side review process can help you understand your risks and opportunities and make an informed decision, faster and more accurately about how and whether to proceed with the deal while protecting your interests.
The reviewing process lets you unmask and assess critical data of the following areas about the targeted business:
- The quality of earnings and cash flow
- The quality of assets and liabilities
- Internal control weaknesses related to systems and personnel
- The deal structure from a taxation perspective including tax compliance risks and issues
- IT infrastructure issues and future cost savings and requirements
- Financial projections
- Purchase agreement details and alignment
- Risks and costs associated with complex transactions like carve-outs and add-on acquisitions
Understanding the above allows one to weigh the M&A transaction price and terms as well as the future of the targeted business.
But a successful buy-side transaction is a skilful blend of key ingredients and execution. And the higher the quality of the ingredients, the better the end result. The key ingredients to a successful buy-side process include:
Ensuring executive alignment and buy-in:
Leading dealmakers agree that executive alignment is the number one factor that drives success in deals. If there’s a strong executive alignment at the top pushing the acquisition forward, the deal was much more likely to be successful in the short and long-term.
Strengthen cross-team collaboration:
Cross-team collaboration is another essential to optimize the buy-side process. With buy-side review teams being large, often exceeding 50-60 people, maintaining appropriate levels of transparency and information sharing with your deal team is an ongoing challenge. Improving cross-team collaboration is easier said than done. Best practices include ensuring that the wider team understands the deal’s strategic objectives and works together on identifying key dependencies and risks. New project management and collaboration tools that increase team awareness of big milestones and key due diligence findings can also help address some of the communication gaps.
Develop repeatable processes:
With corporate development teams juggling potential buys along with other transaction types like partnerships, creating a standardized, repeatable process is more important than ever. It’s ideal to make it customizable by breaking the process into small chunks. For instance, by creating a template of due diligence checklist of the documents you’ll need for every deal. Similarly review your process to create separate templates for other parts of your process. Analysing the extended team’s due diligence findings is a big struggle and often leads to miscommunication. Instead, develop a template so the deal team can focus on the questions you need answered most.
Update your technology:
One of the biggest impacts of COVID-19 was the move to an online-only environment.
Harnessing technology adoption jump to suit one’s need is the biggest challenge. Conduct a review of how your team uses technology today. What new buy-side tools can help enable your team? What current ways of working can be improved? Can platforms, tools, or invoices be consolidated and simplified? Change is never easy, but with huge productivity gains at stake, it is worth the effort.
Thus, a thorough buy-side due diligence and implementation of its key ingredients allows you to analyse and validate critical financial, operational and strategic aspects of the deal, making it easier for you to structure and negotiate a favourable transaction that’s right for your overall portfolio.
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