The 60-Second Due Diligence Assessment

Mark Herndon headshot
By Mark Herndon
President, M&A Partners
Apr 18, 2016

An investment banking mentor of mine once told me that he could determine whether or not he wanted to pursue a deal in 60 seconds or less by looking at four key data points on the target business: liquidity, solvency, profitability and growth. To him, everything else was just validation (or not) of his initial perceptions.

"Deals are like buses at a bus stop.  Don't jump on one if you don't know where it's going.”

While that approach might work in certain situations as a high-level target screening criteria, I certainly don’t recommend relying on that approach for your due diligence! But it did trigger a thought: how quickly could you assess your historical due diligence performance and your current internal due diligence capabilities? Try out this 60-Second Internal Due Diligence Capability Assessment. Answer each on a scale of 1–10 with 1 being “Strongly Disagree” and 10 being “Strongly Agree.”

1. Our due diligence process is well-coordinated, timely and efficient.

2. Our due diligence process consistently identifies risks or issues which may potentially impact the transaction itself, the purchase price/terms or post-closing requirements.

3. Our due diligence process consistently identifies cultural, business model or target company capability issues which will affect integration or long-term value-creation opportunities.

Obviously, most acquirers have sufficient deal experience and competent advisors, which enables them to get question 2 right most of the time. Not so much for questions 1 and 3. In fact, in our surveys and direct field experience we still routinely find sophisticated acquirers making many of the due diligence mistakes summarized in Good Diligence Gone Bad.

As for my investment banking friend, I still rely on his advice in other areas, such as these tried and true pearls of due diligence wisdom offered below as friendly reminders to help keep you and your deal teams solidly in the win column.

  • “The price of making a mistake is greater than the price of missing an opportunity.”
     
  • “Deals are like buses at a bus stop. Don’t jump on one if you’re not sure where it’s going.”
     
  • “Integration begins with due diligence.”
     
  • “A checklist is a guideline, not a crutch. Effective due diligence requires you to get a ‘Ph.D.’ in the target company.”
  • “Some of our best deals are the ones we didn’t do.”

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