M&A Due Diligence
With millions of dollars on the line, how do you ensure you’re providing clients with the right legal insight about the deal?
The answer: You fortify your client’s investment through the due diligence process.
What is M&A Due Diligence?
M&A Due diligence is the process of collecting and reviewing all relevant information about a merger or acquisition prior to the sale. In doing so, you can spot all of the potential liabilities — including any debts, lawsuits, long-term agreements or more — that might deter the buyer from deciding to follow through with the acquisition.
In other words, due diligence helps buyers make more informed decisions.
Although critical to the success of an M&A, due diligence has long been viewed by legal departments as a necessary evil that offers little value after the transaction is complete. Depending on the size of the acquisition, due diligence could require months of intense analysis by a robust legal team with an immense amount of skill, focus and experience.
Why Does Due Diligence Cost So Much Time, Money and Effort?
The pre-acquisition M&A due diligence process requires gathering enough information to paint a complete picture about the potential threats and opportunities associated with the sale. Traditionally, lawyers paint this picture by taking a blanket approach to examine every clause, term and detail for risk — but the information gathered during this process is set aside and never used again.
And that’s where the traditional due diligence process falls short.
The truth is, M&A due diligence doesn’t have to be a sunk cost. By taking a risk-based approach to the process and powering it with the right technology, you could easily identify and eliminate risk, deliver strategic commercial insights and derive ongoing business value on time, every time, and well within the scope of your initial budget.
In fact, this innovative, risk-based approach has been shown to reduce due diligence costs by up to 70 percent.
Don’t Throw Money Away: How to Streamline the M&A Due Diligence Process
So what does that risk-based approach to due diligence actually look like?
Because the pre-acquisition review involves such a vast amount of data — even for standard, non-complex agreements — lawyers often spend an incredible amount of time sifting through inconsequential details before they can discern any true insight or actionable advice.
By using data analysis for a quantitative examination of risks, you can cut through this noise and unearth anomalies more efficiently. Modern contract management technology empowers legal teams with the ability to automatically capture essential data from their contracts and store that data for a streamlined assessment of risk and value in future deals.
This sophisticated software not only saves legal teams much of the ennui typically associated with the M&A due diligence process but also helps the deal progress more quickly and successfully, resulting in a happier client as well.
Be Prepared. Be Precise. Be Persistent.
Don’t wait for the buyer to ask for additional information — start planning early. There are a number of things that need to fall into place in order for the due diligence process to go smoothly, so have a due diligence checklist on hand to reference every time you begin the process.
As you’re looking over your checklist, try to put yourself in the buyer’s shoes. What would they be interested to know? Is there anything on your list that you could include or disclude without harming the integrity of the sale? What are the potential deal breakers that might come up?
Successful due diligence is a classic case of “work smarter, not harder.” You need to think strategically about the process in order to ask the right questions, discover the right information and offer the best legal advice to your client.
Build a Diverse Team and Designate a Due Diligence Lead.
Because M&A due diligence is such a cumbersome process, no one person can do it on their own. Build a multi-disciplinary due diligence team that includes professionals from financial, legal and business sectors — and don’t skimp on their expertise. The team should be skilled and highly-experienced in M&A to ensure a smooth process.
While you need a broad and diverse team of minds to tackle due diligence effectively, you should still assign a primary lead for the project as well. Someone needs to be in charge of holding the rest of the team accountable and pushing the project forward.
If you don’t have an internal team with the skills, knowledge or resources to conduct due diligence effectively, don’t be afraid to outsource the process to adept and experienced professionals. Regardless of the route you take, it’s critical that the team’s collective knowledge is vast enough to address any of the potential issues that might come up.
Embrace AI to Speed Up the Process.
“Don’t rush” is one of the most important pieces of due diligence advice you’ll ever get — but that doesn’t mean you can’t use the tools and technology available to you to cut out unnecessarily time-consuming processes.
AI and machine learning have transformed the due diligence process by streamlining the reviewal process, automatically detecting risk and finding loopholes in contracts that would take hours or days to find manually. Top law firms are taking advantage of this leading technology to achieve never-before-seen efficiencies and stay ten steps ahead of their competitors.
When you power smart software with human expertise, you can’t lose.
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M&A Due Diligence Checklist: Have You Collected All of the Information You Need?
Because there is such a large amount of information that you need to sift through for effective due diligence, it can be tough to make sure you’ve collected everything you need.
Keep a due diligence checklist on hand every time you go through the process to ensure nothing is overlooked or forgotten about. A good starting place for an M&A Due Diligence Checklist will include:
- Corporate Documentation
- Financial Data
- Technology and Intellectual Property
- Customer Data
- Material Contracts
- Culture Fit Between Parties
- Employee and Management Policies
- Pending and Historical Litigation
- Environmental Data
- Physical Assets
- Marketing and Sales Information
- Insurance Information
- Manufacturing Information
- Competitive Landscape
These are some of the most significant and common areas of focus for the due diligence process, but depending on the unique circumstances of each deal, you may need to consider other key information as well. By planning out your process and anticipating the relevant issues ahead of time, you can avoid dropping the ball on any critical information.
Extracting Continued Value From M&A Due Diligence
Once you’ve completed the due diligence process, you don’t have to just throw all that harvested data away. Whether the original deal went through or not, you can still recycle the insights you’ve derived to inform your future due diligence strategy.
By aggregating the data collected during the due diligence process into a searchable, taggable, accessible and relevant form, you can reuse it later on for things like renegotiations and license expirations — without incurring additional costs. This repository of valuable, infinitely reusable data ultimately removes friction from future deals, speeds up outcomes and reduces the risk of deal failure.
In other words, you can do more with less. Advanced contract management software augmented by the legal prowess of an experienced team gives you the power to add considerably more value than you would using traditional due diligence tools and processes.
A New Way to Conduct M&A Due Diligence: Imperial Logistic’s Success Story
75% Saved in Due Diligence Costs. 50% Reduction in Deal Timeline.
Imperial Logistics, a global logistics and supply chain leader, has a consistently high level of contracts, leases, mergers and acquisitions to manage.
However, the capacity of Imperial Logistics’s legal team was limited, and they needed a partner to help them accurately and efficiently conduct due diligence for a major deal in a short period of time.
Using advanced technology, fluid resources and stringent quality control checks to drive the due diligence process, Exigent was able to achieve new efficiencies, cost savings, risk mitigation and sustainable value for Imperial Logistic’s legal team.
“We’re grateful to Exigent for not only answering our efficiency call, but also for showing us there is more to due diligence than just cost savings and speed of delivery. We’re excited to see where a smart approach with a long-term vision for how to use contract data will take us.”
— DE WET DE VILLIERS, Commercial Manager, Imperial Logistics
Interested in learning how we did it? Read the case study.
Struggling With Cost-Effective M&A Due Diligence? We Can Help.
It’s no question that due diligence is a vital component of any successful investment — but it doesn’t have to be such a time- and revenue-draining activity. In fact, the pre-acquisition reviewal process could be a source of incredible insight and opportunity for your business.
Exigent challenges the traditional approach to due diligence. With a team of highly experienced attorneys, business analysts, developers and consultants, we add value to your business by combining smart contract management solutions and strategic methodologies to enhance the due diligence process.
Even large-scale, high-profile M&A deals are delivered within scope, on deadline and below the current market budget — and then, we set your team up for sustainable success by capturing valuable, reusable data from your existing contracts.
Your greatest business challenges are no match for our team of legal visionaries. Learn how Exigent can help you extract ongoing value from your M&A due diligence process by speaking with one of our experts today.