The 2 Most Important Words in Due Diligence
“SO WHAT?”
By Jack Prouty, Past President, M&A Leadership Council
Too often, the focus in due diligence is on collecting data rather than analyzing the business.
It is equally important to evaluate how well the businesses align; the value the acquisition brings to the acquirer and vice-versa; how the business is organized and how well it operates; analysis of their financials; potential synergies; and an assessment of their culture.
At M&A Leadership Council due diligence training events, I challenge the attendees to always ask the “So What?” questions regarding any information collected or interview held:
- What is the finding and how important is it to our diligence effort?
- Based upon their business model versus ours, how well do they align with us?
- What are the integration implications based upon what we have found or heard?
- Have you found any potential opportunities, “hidden jewels” and synergies; and are these high, medium or low?
- What are the potential risks in acquiring this business (e.g., financial, operating, cultural, cyber security, etc.) and are they high, medium or low?
In our training programs, I ask how many collect organization charts as part of the information data gathering. Every hand is raised.
I then ask how many actually analyze these organization charts for what they can tell them about how the companies are organized (for example, by geography or product line); the business functions they have (which may be more or less than theirs or co-mingled in a different way); job titles (how roles are defined or if they are inflated, which will create a major problem during integration); and staffing levels (how many employees are performing similar job functions). Few hands go up to this inquiry.
I recommend that you focus on the most important things and then press the team with the “So What” question. For example, if you are acquiring a company for their game-changing technology, the focus should be on these questions:
- Is this truly unique, game-changing technology?
- Do they own the technology, patents, licenses, etc.?
- What is the market-pull for this technology?
- Are we positioned to effectively leverage this technology? In other words, are we able to change and adapt our organization, our culture, our rewards/measurements, etc., to create value with this new technology?
Anything beyond these 4 questions is probably of second-tier focus, but these require deep analysis and constant probing with the question, “So What?”
Attendees of “The Art of M&A® Corp Dev & Due Diligence” often cite the “So What?” discussion as a top takeaway of the event. I encourage you, as the diligence project manager, to add this simple approach to your process and to ask in response to every report-out by the various workstream leads: what is the finding, and — “So What?”
Remember, due diligence is not how much data you can collect, but how effective your effort is in assessing the business fit, value and risk of the potential acquisition.
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Learn more about mergers, acquisitions and divestitures at M&A Leadership Council’s virtual or in-person training courses. Network with other M&A professionals while our expert consultant trainers will get you ready for your next transaction (or help an ongoing one) through practical insights, group discussions, case studies, and breakout exercises.
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