Daily Advice

The Anatomy of Pre-Deal Phase and Due Diligence

Mergers and Acquisitions: The success or failure of a merger or acquisition is determined by information. Several businesses nowadays are valued largely on predicted future earnings rather than real assets or activities. Assumptions regarding an organization’s expertise, with the exception of trade secrets, are frequently set aside or ignored entirely.


Economists discovered that early engagement had a substantial correlation with total transaction performance, according to a study of 80 M&A and finance professionals. Almost 80% of organizations were able to close agreements when the finance department was a prominent component of the deal team. The total success rate reduced to slightly over half in situations where the CFO and his staff were scarcely or not involved at all.

Proactive knowledge due diligence is frequently overlooked in the pursuit of value. A merger or acquisition’s success or failure can be determined by knowledge. While services and financial statements may seem to be complimentary or of higher benefit when used together, a failure to comprehend who a company is, its distinctive approach to work, the technology and platforms it has chosen to use, and how it develops can nullify any economic or strategic advantages.

Effective mergers and acquisitions necessitate an understanding of the value of knowledge, and well-executed deals necessitate devoted due diligence targeted at determining an organization’s expertise as embodied in intellectual property and intellectual intangible things. Several of the intangibles lie inside the firm’s people, and failing to comprehend how knowledge emerges in a company can result in gaps that are costly to close if critical employees leave on their own, or worse, are released as part of the agreement.

Processes to Consider

Though economic institutions may not be immediately aligned, finance teams can generally reconcile accounts using legislation and accounting procedures. Indeed, the money finds its way into whatever coffer comes out on top. Even if there is overlap, goods and services are straightforward to reconcile unless the goal is to inorganically construct a conglomerate or develop a holding company portfolio.

Organizational knowledge, explicit, implicit, and tacit, on the other hand, is frequently less aligned—and, in many respects, practically difficult to find during the due diligence process of a merger or acquisition. The manner in which communications are conducted, the product development process, and the networks that promote informal learning are frequently far more crucial to the success of a merger or acquisition than product or service complementarity. Even if the intention is for the purchaser’s processes to replace the acquired company’s, the replacement must still be negotiated, and it’s quite probable that the negotiation will uncover something valuable from the acquired company’s systems that will change the purchaser’s systems.

Mergers & Acquisitions Expertise

While there may be a pre-deal desire to learn about a company’s culture, the abstraction of culture makes it more difficult to do so than learning about a company’s financial status. Nonetheless, approximations can be studied to get insight into a company’s “identity.” Key practices, such as how space is used, what transaction and collaboration environments have been developed, and action feedback loops, are ideal proxies for the emphasis put on learning and the capacity to adapt successfully to emerging situations. Additional insights may be gained by looking at the learning environment itself, which includes onboarding, professional development, and documenting lessons learned by existing workers. Leaders looking to track the progress of a merger or acquisition can use these teaching indicators to assess.