How Do You Perform Due Diligence?
Due diligence can be daunting. It’s a hefty amount of work that requires meticulous analysis and a lot of questioning. It can also be an extensive process that can be difficult to fit into an M&A pipeline. One strategic acquirer we’ve met divided their due diligence timeline into phases. This mitigated the shock and paralysis that can occur when a full due diligence checklist is presented all at once.
Financial due diligence is the method of assessing the accuracy as well as the sustainability and integrity of financial data to identify opportunities and risks in the financial sector. This involves looking at historical balance sheets, and cash flow statements in order to understand the history of a company’s earnings. It is crucial to analyze the company’s past performance and projected future earnings to evaluate the potential of an investment that makes sense.
Operational due diligence evaluates the internal processes and systems, including the technology infrastructure as well as supply chain human resources, and more. It is crucial to determine whether an acquisition will support existing operational processes, or if significant improvements are required.
Review pricing strategies, sales agreements and expense breakdowns to determine the target’s revenue sources, costs, and profitability. Examine trends and patterns in the purchase behavior of customers to find growth opportunities.
Know the political, economic, and business environment in a country to determine it’s potential as an export destination. This is usually done by a professional who has expertise in exporting to particular countries or regions.