Many business owners have an exit plan in place when they run their businesses. In this case it is important to know the business worth of your venture. On the other end of the spectrum, if you are a potential buyer, you need to check if the amount you would be investing justifies its worth. Both cases depict a common thread – the importance of doing due diligence before buying or selling a company.
What to evaluate prior to due diligence?
1 – How is the team interaction?
An investor will interview key team members and check if there is a perfect sync from all of them on commitment to goals and expected skills.
2 – Customer experience
If customer interviews yield positive news about their experience with the brand, then the investor is likely to view the acquisition positively.
3 – Technical due diligence
An overall assessment will be needed of the internal team, their roles, and the processes they follow.
4 – Competitive analysis
A third party expert will be able to determine the brand’s competitive positioning and if there are any barriers to market entry.
5 – Commitment to meeting deadlines
This is especially relevant if you are buying or selling a startup. Investors will look at the company’s track record of how well they are able to meet and exceed to commitments. No milestones set or many milestones missed is a red flag for an investor.
Steps in due diligence to carry out
In order to extract the above information it will be wise to carry out a step-wise due diligence process
1 – Assess the growth markets
Determining the avenues for growth with this deal is the focal point for an investor Data on client segment, demographics, competitive intelligence, and product/services mix will provide vital intel.
2 – Identify suitable candidates
Assessing the total pool of potential candidates and narrowing down on one will be crucial. They can either be from the same line of business (just like the Flipkart merger with Walmart) or have a totally new business acquired for its talent, processes, or goodwill.
3 – Determining the Strategic and Financial fit
This stage will look at points like the advantages of going ahead with the M&A deal, the risks associated with the deal, and if it is inline with the broad vision outline by the bigger company. For this, a trusted advisory expert would be a good choice to make an unbiased decision.
4 – Make the Go / No-go decision
While the initial intel will be available at this stage, the leadership will still need to converge to ensure sound business decision-making. Here they will determine if the combined entity presents a compelling case to go ahead or not.
These steps will help you ask questions that will help in correct investment strategy and give you more out of the merger and acquisition deal.
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