Non-financial due diligence in mergers and acquisitions

The financial and legal aspects of due diligence are well developed and practised – but they won’t turn a bad acquisition into a good one!

Assess you target carefully asking the following questions:

Vision, strategy and the rationale for the acquisition

  1. How do they define success?

  2. What is their current strategy – and how does that fit with ours?

  3. What should the group look like 3 years after this acquisition?

  4. What benefit will our respective customers get from this acquisition?

  5. What prospective new customers become available?

  6. What are the key measures of success for the acquisition?

Marketing

  1. How does the target’s value proposition map to ours – and can we credibly combine them?

  2. What are their products – and how can they be combined with ours?

  3. Who are their customers, how do they complement ours and how can we keep them?

  4. What are their routes to market – can we make 1 + 1 = 3?

  5. Who are their competitors – and why do they beat them?

Sales

  1. Is their sales methodology well defined and implemented – and does it fit our corporate values?

  2. Can we keep their successful sales people?

  3. Is their sales pay and incentive programme compatible with our policies?

  4. Does their alliance sales infrastructure fit with our strategy?

  5. Can we use each other sales channels for our respective products?

Innovation of products and services

  1. Do they deliver innovation effectively?

  2. Is their current innovation roadmap compatible and complementary to ours?

  3. Can we bring things to market, that we cannot do individually

Operations

  1. Do we gain valuable facilities – or can use existing facilities more efficiently?

  2. Can we rationalise suppliers, or negotiate better terms with them?

  3. Will our distribution systems combine well?

  4. Are their quality management systems effective and compatible?

  5. What do we need to do to integrate IT and other control systems?

  6. What expertise do we gain?

Culture

A significant cultural clash can de-rail any acquisition

  1. What are the core values of each company?

  2. How – and where - are decisions made in the two companies?

  3. Who will be the most effective leader of the combined operation?

  4. Do managers and staff understand company’s goals and their role in achieving them?

  5. Are recruitment, development and retention practises compatible?

  6. How do the remuneration policies compare?

  7. What information is communicated to different staff levels in the two organisations?

  8. What is the work ethic of the two organisations?

Management

Making an acquisition – and ending up with a poor or incompatible management team – reduces your opportunity for growth and can destroy value in your company

Investors often say that the quality of the management team is of greatest importance when assessing an investment

But:

Many (perhaps most) are very poor at assessing the quality of management teams

Post acquisition leadership and management is key to success. Take time to get it right, and get external help.

For impartial help in evaluating your proposed acquisition or for help with integration post acquisition, contact Mike Robson on 0207 100 1233 or via mike.robson@azurepartners.co.uk