Prepping Your M&A Due Diligence Team for Success

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By Mark Herndon
Aug 31, 2016

“One of the most important parts of making a deal successful after you complete it is what you do before you complete it.” Is there any more tried and true due diligence and deal making success principle than this?

Before we can think about bridging from diligence to integration, we have to ensure that we launch and conduct a comprehensive and successful diligence effort with thorough traditional and strategic diligence, including early and adequate evaluation of many issues typically kicked down the road, often to the buyer’s regret!

At a minimum, let’s start by assuming that your organization has these essential due diligence basics already well institutionalized in your M&A methodology.

"Few steps will have a more important role in deal success than a comprehensive briefing and planning session with the entire due diligence team prior to launch."

  • Standardized process. You have a detailed end-to-end M&A process with detailed instructions, objectives, requirements and role definitions for an effective diligence exercise. All advisor team members are aligned and on-board with your process so you can run one coordinated and integrated effort as opposed to multiple separate and overlapping request lists, schedules and deliverables.
  • Expert-level function leaders. You have identified and assigned your best and most highly experienced M&A resources in each key functional or business unit area to work as direct adjunct team members alongside corporate development or M&A team leaders. These resources will be the ones to advise the deal-team on essential diligence points and provide observations from their respective functional or business team area, as well as marshal, orient and manage other functional resources as may be needed during the diligence process.
  • Solid transaction governance and decision criteria. Executive staff, the “deal-sponsor” and deal-team leaders are all aligned with respect to specific criteria for go-no/go, threshold returns or other “deal-killer” requirements. Without these firmly in place in advance, some organizations have wasted valuable time and resources after it became apparent the deal was likely a nonstarter.
  • Efficient diligence process management. Our friends and M&A Leadership Council sponsors for due diligence, Crowe Horwath, have helped pioneer an important concept called the Diligence Management Office (DMO) This function and process applies what integrators commonly do to lead, coordinate and process-manage multiple concurrent work-streams during integration, (i.e. the integration management office), but applied specifically to the due diligence process. For more on this important strategy, refer to “Do You Know the DMO?

But these are the basics. Now the challenge becomes ensuring your organization has the firepower to effectively engage the target, evaluate all relevant issues and interpret essential insights and conclusions – across all teams and considerations, in an efficient and expedited way. Typically, this means that you are relying on a cross-functional team with varying degrees of M&A experience to conduct the diligence, report key findings and to advise executives with respect to essential issues.

Whatever your time and priority constraints at this point in the process, few steps will have a more important role in deal success than a comprehensive briefing and planning session with the entire due diligence team prior to launch. As Preparing Your Diligence Team for Success, indicates, this diligence prep session should be hard-wired into your overall M&A process and conducted routinely in advance of every deal. 

By way of example, we were engaged recently by a major global manufacturer that anticipated increased near-term acquisition activity in a couple of major product divisions. Since many of the key executives were new and since many functional leaders throughout corporate services and the business units had not yet completed a full, end-to-end M&A cycle together, the decision was made to bring together from across the entire organization the top 30 folks who would soon be tapped to lead an important diligence assignment.

For our part, we supplemented with best practices, diligence process requirements, skills and insights to expand the client’s M&A capabilities from strictly a traditional view of due diligence to additional strategic areas of extreme importance for the pending deals.

Day 1 of the training included an overview of the company’s acquisition strategy, M&A process methodology, governance roles, project management protocols, and likely types of target deals in the near future.

Day 2 of the training provided working sessions and structured planning for each respective functional or business team to get fully aligned with resourcing requirements, priority issues, customized check-lists, scheduling, etc. The day concluded with an all-important mapping exercise to identify and coordinate essential cross-functional issues for the diligence exercise.

On Day 3, the first target company was revealed and the diligence teams were provided a full briefing on the target company background, deal logic, value-drivers, as well as deal-points and issues to anticipate. Teams were then provided an opportunity to conduct a final-preparation working session and fine tuning to get ready for a successful deployment. 

Learn more about best practices for strategic due diligence and equipping your team for success. Join us in July for The Art of M&A Due Diligence, where we'll present alongside experts from BDO and Willis Towers Watson. Space is limited, so register today!

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