Introduction to M&A Due Diligence
Mergers and Acquisitions (M&A) transactions involve significant investments and risks. Due diligence is the process of investigating and validating information about the target company before completing a transaction.
Types of Due Diligence
Financial Due Diligence
- Historical financial performance analysis
- Quality of earnings assessment
- Working capital requirements
- Debt and liability verification
- Tax compliance review
Legal Due Diligence
- Corporate structure verification
- Contract review
- Litigation history
- Intellectual property rights
- Regulatory compliance
Operational Due Diligence
- Business model assessment
- Key personnel evaluation
- Customer and supplier relationships
- Technology infrastructure
- Process efficiency
Commercial Due Diligence
- Market analysis
- Competitive positioning
- Growth opportunities
- Customer concentration risks
Key Red Flags in Due Diligence
Financial Red Flags
- Inconsistent revenue recognition
- Unusual related party transactions
- Undisclosed liabilities
- Cash flow vs. profit discrepancies
Legal Red Flags
- Pending litigation
- Regulatory violations
- Incomplete documentation
- Ownership disputes
Operational Red Flags
- Key person dependencies
- Customer concentration
- Technology obsolescence
- Labor issues
Due Diligence Best Practices
- Comprehensive Checklist: Use detailed checklists for each area
- Expert Team: Engage specialists for each domain
- Data Room Management: Organized virtual data room
- Regular Reporting: Timely updates to stakeholders
- Risk Assessment: Clear risk identification and quantification
Post-Due Diligence Actions
- Price negotiation based on findings
- Representations and warranties
- Indemnification provisions
- Condition precedents for closing
JMRCA's M&A Advisory Services
Our transaction advisory team provides:
- Buy-side and sell-side due diligence
- Business valuations
- Deal structuring advisory
- Post-merger integration support
Planning an acquisition or sale? Contact us for expert guidance.
