Almost 62% of mergers and acquisitions fail to achieve their financial goals because of insufficient Due Diligence. There are a variety of ways to avoid this outcome.
This article explores the basic principles of due diligence, by exploring the different kinds of data that need to be analysed in order to assess the health the company and determine its worth. This includes analyzing the competitive landscape of the company, profitability, and potential for growth in a uncertain economic climate.
The first step is to look at the overall balance sheet of a company with particular attention paid to the cash balance and the amount of long-term debt. Investors will be able to see how the company is managing their expenses and whether they are able to deal with cash demands on short-term basis in a challenging economy.
It is also essential to examine a company’s position in terms of its strategic positioning which includes the growth potential of the product lines and the market share of the present markets, and the strength of the company’s innovation capabilities. Investors should also consider the supply chain of the company in order to understand its capacity and risk in a volatile economy, for instance, whether it is able to deal with fluctuations in customer demand.
It is important to understand the leadership and management of the business. This will help to identify any hostility that might trickle down to the acquiring company and affect its operations after the sale. In addition, it is crucial to be aware of the cultural differences between the two companies. This will allow the M&A team to come up with strategies for overcoming any integration issues.
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